Oatly Aktie

Good day and thank you for standing by. Welcome to the Oatly Group Third Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, John Baumgartner, Vice President of Investor Relations.

Good morning and thank you for joining us today. On today's call are our Chief Executive Officer, Jean-Christophe Flatin; our Global President and Chief Operating Officer, Daniel Ordonez; and our Chief Financial Officer, Marie-Jose David.

Please review the cautionary statement regarding forward-looking statements and other disclaimers on Slide 3, which are integrated into this presentation and includes the Q&A that follows. Please also refer to the documents we have filed with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

Also on today's call, management will refer to certain non-IFRS financial measures, including adjusted EBITDA, constant currency revenue and free cash flow. Please refer to today's release for a reconciliation of non-IFRS financial measures to the most comparable measures prepared in accordance with IFRS. In addition, Oatly has posted a supplemental presentation on its website for reference.

I'd now like to turn the call over to Jean-Christophe.

Thank you, John, and good morning, everyone. Slide 5 features our key messages. First, our third quarter tells the story of business resilience. Not only did we deliver strong top line growth, but we also delivered substantial growth in total adjusted EBITDA, both year-on-year and sequentially, despite another quarter of elevated and tightening cost inflation. Our results exceeded consensus expectations despite this pressure.

Second, in Europe and International, volume momentum remains robust. On-trend innovation drives growth, and we believe that our new products are capturing incremental demand, both for Oatly and the plant-based category, while attracting younger consumers.

In North America, where the macro backdrop remains challenging, we are activating on the controllables as we accelerate retail distribution growth now at a record high number of distribution points, and we continue to narrow the market share gap in pursuit of category leadership.

Third, I'm excited to announce our entry into the wellness space through our new platform of Fiber beverages. Our first platform launch planned across both Europe and North America. One of the reasons that our founders chose oats is for its nutritional power, including the fiber naturally present in oats. As many populations consume less fiber than recommended by dietary guidelines, creating what we refer to as being the fiber gap, our Fiber platform is designed to offer consumers a convenient and delicious way to incorporate more fiber into their everyday diets. Our Fiber line has launched in Europe and arrives in North America in January 2027.

Fourth, our cost structure maintained strong resilience through the third quarter, including absorption of higher costs related to the Middle East conflict, both in Europe and International, and North America, which allowed us to deliver our strong quarter 3 performance.

However, the latest wave of logistics and fuel inflation in North America has finally exceeded our capacity to offset. For perspective, in the U.S., diesel prices have increased approximately 70% since the beginning of the conflict in the Middle East in February and approximately 40% since early July. This unexpected and sharp acceleration during quarter 3, combined with broader logistics pressure, drives the downward revision to our full year adjusted EBITDA outlook.

In response, we continue to engage key mitigation levers, including continued cost efficiencies and product mix, and we will implement incremental pricing effective in the first quarter of 2027. Amid these volatile and challenging macro headwinds, we choose to protect our profit margins and resources to reinvest and fuel our growth. Despite these profit headwinds, we remain on a positive structural trajectory of profitable growth.

Our reiteration of 2026 constant currency revenue despite more difficult year-on-year comparisons and macro consumer pressure reinforces our confidence and visibility into our demand-generating growth strategy.

Turning now to Slide 6. Here, you can see our solid third quarter scorecard for important key performance indicators. Our revenue grew by 9.1% and 8.9% in constant currency. Our gross profit margin reached 34.1%, an improvement of 436 basis points compared to last year. Our adjusted EBITDA was positive $9.4 million and 3.9% of net sales, an improvement of $6.3 million versus last year despite reinvestment and cost inflation.

Finally, our free cash flow in the quarter was a negative $18.4 million, a decline from last year outflow of $5.4 million and attributable to timing elements that MJ will detail in the finance section.

Our year-to-date cash flow is evolving consistent with our expectations, and our business plan remains fully funded. We maintain focus on achieving positive free cash flow through continued improvement in the P&L, growth in adjusted EBITDA and working capital efficiencies.

Slide 7 reiterates our focus areas for the rest of 2026. As Daniel will soon outline, not only do we maintain high conviction in the traction of our growth playbook on existing portfolio, but our combined taste and fiber products strongly position us to participate in more consumption occasions across more consumer segments as a full beverage company.

In addition, we remain fully mobilized across all parts of the company to mitigate the continued macro volatility and cost headwinds to protect our profit margin and our ability to further fuel our growth momentum.

Finally, as it pertains to Greater China, we expect to complete our strategic review by the end of this year as we evaluate a range of options, including a potential carve-out. Our goal is to accelerate growth, enhance operational focus and improve our consolidated cash returns whilst maximizing the value of this business. We view North America and other international expansion markets as our priorities for growth, and we commend our management team in Greater China for navigating challenging local headwinds in recent years. We will, of course, update the market on our progress as necessary.

Slide 8 summarizes our guidance. For full year 2026, continued execution of our growth playbook underpins our unchanged outlook for constant revenue growth of 8% to 10%. As discussed, the reduction of our adjusted EBITDA outlook from the prior lower end of $25 million to $35 million to a new range of $16 million to $20 million reflects incremental pressure from fuel and logistics in North America since the end of July.

With that, Daniel, over to you.

Thank you, JC, and good morning, everyone. I will start my discussion on Slide 10. We're very pleased with our strong year-to-date performance from the deployment of our growth playbook, which demonstrates Oatly's relevance in shaping the beverages culture.

As I discussed last quarter, over the past 2 years, we have made substantial progress reducing the barriers to consumption and creating new occasions for consumers to enjoy the taste, functionality and versatility of our oat drinks. We're encouraged by the growth in household penetration, which we believe reflects growing consumer preference of Oatly as a full-on beverages company.

As we close 2026, this approach is gaining momentum through new platforms and unique flavors, appealing to a much broader population and anchored on taste, health and with sustainability at the core. It is important to reflect on Oatly's ability to shape global beverages trends, so we captured the most prominent in the upcoming slides.

In quarter 3, we strengthened our presence in the global Matcha phenomenon with Monochrome events in Berlin, Toronto and London as featured on Slide 11. Our presence at the London Fashion Week reinforces Oatly's relevance at the intersection of beverages and culture, which led to a high-profile London Embassy event last week as featured on Slides 12 and 13.

Following After-Taste in New York back in June, our London Embassy event attracted media, influencers and commercial partners to celebrate the collective momentum for beverages and the launch of our latest trendsetting recipe Look Book, the volume 4 and our Future of Taste Report 2026. We hosted over 500 attendees on day 1 alone before it was open to the public. They experienced signature drinks, panel discussions exploring taste, trends, fiber, sustainability and participated in hands-on drinks master classes.

As demonstrated in our Future of Taste Report on Slide 14, our ambition is to shape what's next on menus. The insights that inform this work are collected from our very own beverage market developers based in each coffee capital of the world as well as coffee houses, experts and mixologists from more than 20 countries and finally, validated by data identifying what's trending online.

As traditional nightlife culture declines, cafes have become the hub where new ideas are cultivated and subcultures are formed. Oatly is uniquely positioned to offer our commercial partners the expertise into the trends shaping coffee culture and how these trends can be realized via our Look Book.

In this year's Future of Taste Report, we explored the pharmification of drinks from fiber to ferments, with the expectation that functionality cannot come at the expense of taste. Emerging health trends, including gut health, fiber-maxxing, fiber-layering, and skin care, are increasingly delivered through drinks.

Slide 15 shows how the coffee menu is transforming, fueled by customization and visual appeal, and moving away from the traditional offers of flat whites and cappuccinos. As an example, we expect the Mont Blancs and Cold Foam to enter the mainstream. Oatly's versatility is highly relevant for inclusion among these trends, and we close 2026 more confident than ever that Oatly provides the ultimate base for functionality, fun, and experimentation as captured in our Look Book. Through flavors and formats, we believe Oatly is strongly positioned to lead this new Taste World Order.

This leads me to our next big announcement on slide 16, the launch of our new Fiber platform. I emphasize that the Fiber range is not simply innovation, it's a natural evolution of who we are. Oatly is built on over 30 years of oat research and innovation which provides unique legitimacy in the fiber space.

Our Fiber line complements our Tastemakers platform as the breadth of our offerings has significantly expanded over the last 3 years.

The Fiber range is available in 2 options: a low calorie, no sugar option well-suited for use in shakes, and a low sugar Barista for coffee and similar drinks. An approximate 250 ml

serving, roughly equivalent to 1 oat latte, provides 5 grams to 6 grams of fiber. So we expect the platform to accelerate Oatly's penetration in new consumer occasions.

For example, low-cal is highly relevant for the world of wellness, fitness, and sports. Oatly Fiber can also be combined with protein powder, bringing fiber and protein together in a

creamy and convenient format, making for a versatile base for shakes and other functional beverages. Oatly Fiber has been designed to make it easier for consumers to incorporate more fiber into their everyday diets with particular focus on female consumers.

Despite these benefits, the modern diet lacks fiber as seen on slide 17. Across Europe, the average daily fiber intake is approximately 10 grams below the 30 grams recommended by health authorities. Similar gaps exist across the world including the U.S. We see consumer demand for fiber on the verge of a multiyear acceleration, and internet search data indicate fiber is already closing the gap with protein.

Fueled by the growing use of GLP-1 medications, consumers are increasingly scrutinizing the quality and quantity of nutrients, and we expect these structural tailwinds to drive fiber demand and notably for oats. Nutrient-dense, naturally rich in fiber, and containing beta-glucans, a type of natural soluble fiber shown to reduce blood cholesterol levels.

We expect Oatly to be among the leaders in reducing the fiber gap through taste and our expertise in oat processing, which is an important part of our approach to developing fiber-focused products. Oatly Fiber will be available across 11 markets in Europe by year end and in the U.S. beginning of January 2027, in the new 48 ounces pack, and it will be supported with intention.

Closing my discussion on innovation, Slide 18 features our Oatly Barista Cold Foam, which extends our presence into the refreshment occasion and is among the strongest trends in the out-of-home channel and, again, particularly relevant for the younger consumer. Specially designed for out-of-home professionals and suitable for hot and iced drinks, cold beverages, and cocktails, our Cold Foam features a delicate vanilla note, is lighter than classic whipped cream, and compatible with most professional equipment. As with Fiber,

we intend to develop it into a full global platform at speed.

Turning to Slide 19 and our quarter 3 performance, Europe and International delivered another very robust quarter. Constant currency revenue growth was at 20.4%, including volume growth of nearly 18%. This is particularly impressive as we lapped volume growth of nearly 9% in last year's third quarter.

At the category level, retail takeaway growth for total plant-based beverages has remained solid, up high single digits driven by volume, while oat milk outgrows plant-based, up 9%. Oatly is growing at nearly double the rate of oat milk category.

As shown on Slide 20, growth in household penetration continues to enhance our results including increasing relevance among younger consumers. Oatly demonstrates strong appeal among Gen Z and Alpha, which underpins our encouraging long-term growth potential. Expanding appeal is also evident in our volume acceleration across the out-of-home channel, as seen on Slide 21, including year-on-year growth of 25% in quarter 3. Across our expansion markets, the sales dynamic is nearly identical. Oatly outperforms oat milk and oat milk is outperforming overall plant-based drinks.

As shown on Slide 22, we are accelerating our momentum and gaining critical mass with the identical playbook curated for local relevance. It seems as if France, Spain, Belgium, Mexico, UAE or Poland had been waiting for Oatly to arrive.

Importantly though, in addition to the accretive revenue growth from expansion markets, we are also adjusted EBITDA positive in these regions as we leverage our established capacity, and we observe a rigorous go-to-market approach.

Time to turn our attention to North America on Slide 23. Retail macros remain challenged. Consistent with recent quarters, category takeaway declined mid-single digits, but we again outperformed with volume-driven growth of 8%. This sustained momentum means we are quickly closing the market share gap, nearing just 2 percentage points to take market leadership, following a gap of nearly 8 percentage points in the summer of 2025.

Overall, our North America segment grew in Q3 with constant currency revenue of 2.9%, including positive price mix. This is net of the sales decline in the former largest customer, which is now significantly reduced, but still meaningful in the year-on-year or quarter-on-quarter comparison. Our sales in out-of-home accelerated sequentially, and September was the second strongest month of sales this year. Looking ahead, we plan to further accelerate this momentum.

Turning to Slide 24, our expectation for continued outperformance is underpinned by 2 catalysts. First, we are growing retail distribution at an accelerating rate including benefits from a category consolidation around a more limited number of leading brands. Our distribution growth has accelerated throughout the year, including contributions from numerous leading retailers and importantly, without diluting velocities.

This growth has been significantly driven by our Barista edition as shown on slide 25, by and large our leading item in Europe, and that I am glad to say, is now gaining traction in North America led by our Taste strategy, connecting the out-of-home experience with the retail channel, both in chilled and ambient shelves, and in multiple sizes for different shopper occasions.

Elevated visibility for Barista provides a foundational bridge to our second catalyst, the launch of flavored Barista, including the likes of churros or popcorn, and the introduction of our Matcha, all of which are now underway.

Collectively, expanded distribution is driving our sustained growth in market share, as featured on Slide 26, and our larger market presence leads to the adoption of our increasingly diverse range of products as seen on Slide 27. This more expansive portfolio enables a reframing of the category to drive new consumer trial, and ultimately, repeat and velocity.

Shifting to Greater China on Slide 28. Third quarter constant currency revenue declined 19.3% on lapping last year's difficult comparison of growth of 29%. Operating conditions remain consistent with recent quarters, including headwinds that persist in the food service channel and sustained strong performance of the new retail portfolio. As JC mentioned, we intend to complete the strategic review of our Greater China segment by the end of this year.

To close my business update, I would like to focus on the trajectory of key business metrics on Slide 29. We continue to deliver strong volume growth, which is converting into operating leverage and gross margin expansion that fuels reinvestment.

In the third quarter, spending for branding and advertising again grew at a strong double digit rate relative to last year and was among the main factors driving the year-on-year increase in SG&A.

As JC mentioned, this latest wave of North America fuel and freight inflation since July has finally outpaced our ability to offset this incremental cost pressure, similar with our peers in

food and beverage, which reduces our outlook for 2026 adjusted EBITDA. With the necessary objective to protect margins, we have already communicated a price increase to our customers, effective in the first quarter of 2027.

We are confident that the significant wave of relevant innovations, taste, fiber, and importantly, the reframing with the 48 ounces pack for the innovations, not on 64 ounces any longer, together with strong distribution and velocity traction, will help buffer volume elasticity.

In Europe, our pricing is also under review as the cost impact related to this year's Middle East conflict is proving stickier. We emphasize our decisiveness for the consolidation of profitability, from which we will reinvest to sustain the current cycle of demand growth in 2027 and beyond.

And with that, I will now turn the call over to MJ.

Thank you, Daniel, and good morning, everyone. Slide 31 summarizes our solid financial delivery for the third quarter. Constant currency revenue grew 8.9% against a more difficult prior year comparison, maintaining the solid rate seen in quarter 2. Gross profit margin was 34.1% and increased 436 basis points year-on-year. Net pricing and product mix offset cost inflation with nearly all pressure driven by conflict in the Middle East and freight expenses in North America. This offset drove the flow-through of solid operating leverage from facility optimization, volume absorption and productivity improvements.

Q3 adjusted EBITDA was a positive $9.4 million and improved $6.3 million relative to last year's quarter 3. Delivery was consistent with our expectations for a ramp in second half profit contribution, driven by gross margin expansion, some favorable expense phasing and SG&A leverage.

Our brand investments have demonstrated strong returns, which have been sustained despite this year's material cost inflation, and the underlying trajectory of structural profit improvement remains positive.

I will now provide more details about our financial performance. Slide 32 shows the bridging items of our revenue growth. Volume grew 4.2%. Price mix increased 4.7% and foreign exchange was a modest headwind at 0.2%.

Moving to Slide 33. The year-over-year gross margin bridge shows the improvement of approximately 440 basis points. This improvement is explained by 450 basis points from fixed cost absorption and supply chain efficiencies and 120 basis points from net pricing and product channel mix. These benefits were only partially offset by a negative impact from inflation of 110 basis points, including 90 basis points from the Middle East conflict and North America freight costs, and foreign currency headwinds of 20 basis points.

Slide 34 shows the quarter 3 year-over-year improvement in our adjusted EBITDA. Growth of $6.3 million was driven by a $16.6 million increase in gross profit, partially offset by a $10.3 million increase in SG&A and Other. Nearly half of this SG&A increase is driven by customer distribution costs, which are linked to sold volumes, and include increasing pressure from freight expense. Approximately 1/3 of the SG&A increase is from selling expenses and largely increased branding and advertising. The remaining increase in SG&A is driven by general and administrative functions. Excluding freight inflation related to macro factors, our underlying cost structure remains positioned to scale with volume growth.

Slide 35 shows segment-level detail. Europe and International grew net sales by 20.4% in constant currency. Despite continued cost inflation related to the Middle East conflict, adjusted EBITDA grew nearly $10 million year-on-year from both gross margin expansion and operating leverage. Adjusted EBITDA margin was 21.4% and expanded approximately 370 basis points year-on-year.

North America's constant currency revenue grew 2.9%. The segment's adjusted EBITDA increased by $1.6 million, to $0.3 million, and a more moderate growth rate relative to last quarter from rising cost pressure from fuel and logistics. Adjusted EBITDA margin was positive at 0.5% and improved approximately 260 basis points year-on-year.

Greater China constant currency revenue decreased 19.3%. The contraction is explained by the lapping of a challenging comparison with the prior year quarter, when constant currency revenue grew 29%, and continued current year macro pressure in the out-of-home channel. The segment reported an adjusted EBITDA of negative $1.9 million, and softening of $3.5 million year-on-year.

As JC mentioned, our strategic review is ongoing and expected to conclude by year end. In our reported results for quarter 3, Greater China results include a noncash impairment charge of $1.6 million, related to the exit of one office location, which is excluded from adjusted EBITDA. Quarter 3 corporate expense was higher by $1.4 million on higher personnel costs.

Turning to our cash flow on Slide 36, I reaffirm that our business plan remains fully funded, and we remain focused on bringing the company to positive free cash flow following the positive inflection in our adjusted EBITDA. In quarter 3, free cash flow was a net outflow of $18.4 million compared to an outflow of $5.4 million last year. The increased outflow results from 3 factors. First is unfavorable timing of capital expenditures which shifted from Q2 into Q3. Second is increased inventory to support our innovation launches and expanded distribution. Third is the previously disclosed expected reversal of beneficial working capital phasing that enhanced cash generation in Q2.

Year-to-date, cash from operating activities through quarter 3 is a negative $11.5 million and improved from last year's outflow of $17.4 million. Year-to-date results are consistent with our expectations, and at the end of quarter 3, total available liquidity was $95 million, including undrawn bank facilities.

Aside from the quarterly volatility in cash phasing this year, we see continued progress in our underlying cash drivers and opportunities for further improvement across all levers of cash flow. We continue to expect that free cash flow will not be positive for the full year 2026.

Specifically for quarter 4, we anticipate improved cash flow relative to quarter 3 and last year from multiple factors. First, timing considerations will result in CapEx not repeating at the same level as quarter 3. Second, as we have already largely built inventory to support our innovation, we do not anticipate a repeat of the headwind seen in quarter 3. Third, we also anticipate improvement in payables.

Turning to our 2026 outlook on Slide 37. As JC mentioned at the top of the call, we are maintaining our outlook for constant currency revenue growth at 8% to 10%. On a reported basis, considering recent FX rates and assuming no change for the rest of the year, we estimate FX to add approximately 200 to 250 basis points to net sales, consistent with our prior expectation.

For adjusted EBITDA, we are reducing our outlook from the prior low end of $25 million to $35 million, to $16 million to $20 million. Year-to-date, the flexibility and resilience of our model absorbed the cost impact of the Middle East conflict. However, similar with many of our peers in food and beverage, the latest increases in fuel and freight costs for North America have been larger than anticipated.

Although we have mitigation efforts underway, the time lag of these levers will be unable to offset this incremental cost push in quarter 4, which we estimate will be in the low double-digit

percent in North America. The net impact of this cost pressure results in our reduced outlook for adjusted EBITDA.

As a reminder, our outlook is provided in the context of what we know today and set against elevated macro volatility. Our fundamentals remain strong, and we continue to execute against our growth playbook, while maintaining agility to adapt to external factors.

Lastly, our guidance for full year CapEx remains unchanged, in the range of $20 million to $30 million, and with a bias to the middle of this range.

This concludes our prepared remarks. We will now hand it over to the operator for the Q&A.

[Operator Instructions] And our first question comes from Andrew Lazar with Barclays.

I guess I wanted to drill down a little bit on some of the pricing commentary. Certainly, a number of packaged food peers have already discussed the likely need to take some pricing actions exiting this year into '27. And those that have discussed it a bit more in a more detailed fashion have also talked about embedding greater than, let's say, historical or typical volume elasticity this time around, just given the consumer is under a bit more pressure than, let's say, the last time the industry had to enact quite a bit of pricing.

So I'm trying to get a sense of what type of elasticity are you embedding in North America? And I guess in Europe as well, it sounds like there's probably some pricing coming there also. And is it greater than sort of what you've typically seen in these types of situations?

Thank you, Andrew. Daniel here will take your call. Thank you for the question. Listen, pricing, you got it right. We will do what we must do to protect margins since the cost inflation seems to be sticky. Before I dive into elasticity, I would like to see how we're looking at the 2 segments, right? We talked about, you got it right as well. The North America price increase is through, and we are contemplating but decisively as well in Europe as we speak.

We need to look at things -- the way we look at things is upon very strong velocities. We see at the moment, strong velocities, market share momentum, significant market share momentum and building up. And we show a consistent net gain from private labels, Andrew. So this is possibly significantly different to what other CPG peers could be seeing at the moment. So that demonstrates that our value equation is robust.

How much are we going to increase price? The sufficient one to offset cost increase. So that gives you already the way we are directionally looking into 2027.

Now to frame this up, we don't see just a price increase as we're implementing these, but primarily an innovation-led price reframing. You see all the new items you see on taste, on fiber, the reframing of the 64 ounces in the U.S. to 48 ounces, all the innovation will come in 48 ounces that you see on Slide 27 for reference, half of those items will be new. So when you see what consumers and shoppers are going to be seeing, are not going to see a net price increase that sits, but a lot of momentum happening on shelf.

Elasticity, there will always be. We're building some, not much. And we expect the context to remain volatile. So -- but on the whole, Andrew, we are -- we believe we are very well placed to minimize the elasticity.

Got it. All right. And then just curious on sort of as you think forward, the outlook on the oat milk category in North America, sort of once you lap the competitor leaving the space, which I'm assuming, but maybe I'm wrong, is what drove the oat milk category down some 12% in the quarter.

Yes. Listen, good question, Andrew. You're right. If you look at what's happening with that alleged consolidation, we're clearly gaining more than our fair share, as you see on Slide 24. Imagine we are 800 bps up in TDPs. So that's a lot and goes back to your previous question about strength and velocities, right? So we're not diluting velocities, which gives us a lot of confidence that it correlates a lot with the household penetration gains we're seeing as well. It's not just about that consolidation. If you look at the other 2 shelves in which we are operating, creamers or ambient, the momentum keeps building. So it's not just a consolidation.

Now as you rightly said, our focus is in driving category penetration. We are obsessed by it. And with 70% of head space of penetration in front of us, that's what we're doing. And then the rest is about executing the playbook and investing behind the innovation, Andrew. Really, really -- we are really, really decisive and optimistic about what fibers and functionality can do in the U.S., if your question was more towards the U.S. and I think it is. This could be the turning point that we're expecting for North America.

Our next question comes from Kaumil Gajrawala with Jefferies.

I guess the big question is trying to understand the impacts on logistics into '27 as best as we can. It sounds like a little bit from your commentary that maybe -- it was obviously prices moved up very quickly and they're hitting 4Q very substantially. But it also sounded like it's temporary in some ways. So I'm just kind of curious on -- is this -- are some of these fees a catch-up costs or something else going on? Or really any insights that we can get into the beginning of '27 related to what's happening with costs?

Thank you, Kaumil. Jean-Christophe, I'll take that. Allow me to start by unpacking your question on the why now, how much are we guiding -- revising or guiding, and so what, including going into 2027. So first, why now? You're right. Up to quarter 3, we have demonstrated our resilience by our ability to absorb higher costs related to the Middle East conflict, mainly on logistics and packaging. And that resilience is what drove our robust delivery both in Q2 and Q3. Now however, in the course of quarter 3, like many of our CPG peers, we have seen an additional and quite sudden inflation acceleration, specifically in U.S. freight and fuel.

Let me just give one illustration. The U.S. diesel price increased by 23.8% just between last Monday, October 26, and the last time we spoke on July 22. If I step back and look at the full year '26, this latest diesel price point is 83% above what it was on January 5, and 2/3 of this growth nearly happened after July. So yes, it has been pretty sudden.

So what this means is, first, our quarter 3 EBITDA would have been higher without this. And it also explains why this is this last wave of inflation that has now exceeded our capacity to offset, hence, the timing of our revised bottom line guidance into the quarter 4.

So what's up for quarter 4? I think I already covered it, perhaps giving you 2 data points. When it comes to the Middle East conflict cost pressure in E&I, it now represents more than 100 basis points of our full year total company net adjusted EBITDA margin. That's data point number one.

Data point number two, to illustrate our freight and fuel challenge in North America, we now expect our freight to customer per liter sold in the U.S. to be in quarter 4, 12.5% higher than the average of H1 '26. So that gives you a little bit of what we are seeing.

If I now go to your question on the beginning of '27, specifically. Honestly, we are informed and humbled by the 2026 journey. So we currently project 2027, both on key cost of goods sold and logistics-like items to be a little bit at the worst half '26, reflecting both the latest energy raw impact price increases that we have got, as well as the highest points of fuel and freight in the U.S.

So to your point, are we planning or are we projecting an ease up of those cost inflation at the beginning of '27? Not at all. And that's why we are taking prices in the way Daniel just described, which is selectively and with innovation.

Our next question comes from Max Gumport with BNP Paribas.

So you continue to show that your growth playbook is really having success, both in Europe and International, and in North America. I'm curious for your view on whether a lot of the growth you're getting from this playbook is onetime in nature and presents tough comparisons versus how much of it is sustainable? And how much of this growth rate that you're seeing both in Europe and North America could continue into '27 at this very attractive rate?

Thank you, Max. Good to hear you this morning. Very good question. I tell you how we're looking at this. We're looking generalized momentum, and we're looking at this as we're only getting started. Why am I saying that? A couple of other data points that are not in the deck.

If you look at our volume growth year-on-year for quarter 3, excluding China, we're growing at 15%. If you're looking at volume growth, excluding China, for the year-to-date, we're growing at almost 10%. So there's something there that shows that we're gaining traction that perfectly correlates with household penetration. We're growing household penetration, as you saw in the deck in all our markets and in both regions. That tells us that there are tailwinds that we are catching, but also we are generating. And as you know very well, household penetration is not something that goes in and out from a month-to-month basis. There are weights and there are trends. So when we look at 70% head space penetration in front of us, we like to think that we are here that this momentum will stick.

On top of that, you add 2 incremental points, Max, before going into some color on the segments. Number one, I'm sure you see like us, there is industry generalized momentum for out-of-home. And you see how much we're growing in out-of-home at the moment. So that tailwind favors our strategy. That's number one.

And number two, the innovation that you see here are not one hit wonders. Everything we have launched is sticking as the necessary velocities to stay and they continue to gain traction, whether it's the Matcha range, the flavored Baristas and now the fibers. So all of that combined makes us look with optimism at the category development in the future.

You would have heard us talking about us not positioning ourselves anymore as an alternative. I think that what we hear from consumers today is that we are a choice, and we're really moving away from this binary dairy versus plant-based debate. And we're really, really moving into what's the right flavor, texture, performance and nutrition for what people drink, right? So that's the way in which we see it generally. And we're not stopping until we'll become the world's culturally favored drink, Max. That's what we're seeing and building a beverage company, which is the kind of lingo that JC and I love using.

Both regions, same thing. Perhaps in the case of North America, in the U.S., I will need to double-click on distribution, right? There is a very, very significant distribution to be gained still, and a reconfiguration of the retail shelves, and we're only getting started there. So when you see 50% of the new items going to hit shelves in the coming weeks, it gives me hope that the shelves in the retail space in North America will look increasingly similar to the ones we can see when we go to London or Berlin.

Great. And then just turning back to pricing. Would it be possible to quantify specifically in North America, just the magnitude of the price increase that you've communicated to your customers already that will become effective in 1Q? Because I can imagine a wide range of outcomes depending on how much of this outsized inflation you are looking to offset.

Yes, of course. I will -- sorry, I will sound like a scratch record here. The sufficient one, Max, to cover for the cost inflation, of course, and it depends. As JC alluded as well, it is selective. It is quite surgical. It's not a wide canvas price increase and a lot is skewed towards the innovation and the reframing on pack. So I hate to disappoint you, but I'm not going to provide you a number, but it's material. It's not insignificant.

Our next question comes from Tom Palmer with JPMorgan.

I know inflation has been a big focus already, but I did have a follow-up. When it comes to the 4Q COGS inflation you've noted, how much of that kind of reflects the full burden of elevated spot prices today for things like diesel and freight versus, say, contracts or hedges delaying some of the step-up into 2027?

Thank you, Tom. Let me reiterate, it's -- the revised guidance is a combo of both the continued Middle East conflict impact on E&I, as well as the very significant further logistic inflation in the U.S., both freight and fuel. So it's not accumulated. As we said, we proudly strongly delivered in quarter 2 and quarter 3, which shows the resilience of our business model at the time where we are creating growth momentum. So nothing accumulated. This is the tipping point has been what has happened in U.S. logistics over the summer, specifically after the month of July. And we are now also projecting that to continue for the beginning of 2027, as I answered earlier.

Okay. Understood. And there was mention of pricing being under review in Europe. Maybe just a review of the conversation up to this point has been very U.S.-centric in terms of inflationary pressure. Maybe just a review of kind of what you're seeing when it comes to Europe on the inflationary front and kind of how you think through pricing there if this kind of price pack architecture bent would also be more of the focus?

Yes. Thank you so much, Tom. I think you should be reading both regions in the same vein. Perhaps there is an internal lag in the process. And the very obvious thing that you all guys know. I mean, we have a much bigger, stronger and more resilient business in Europe and International, right? So in the mix of the way we see it internally, we are reviewing how to continue to strengthen the business. We're not ready to communicate in this call, but we haven't communicated yet to customers, right? But we will make no mistake, we will protect margins. And you can see from the color of this call what we are prepared to do.

Our next question comes from Dara Mohsenian with Morgan Stanley.

Just a bit more detail around cost and pricing. I know we've had a bunch of questions on it. But just to confirm, the revision of full year EBITDA this year, it sounds like that's more entirely driven by costs. So the $7 million revision at your midpoint, that's just cost related? Or are there any other puts and takes you would call out? And as we think about next year, is that sort of a good run rate to think about for the first few quarters of next year until you cycle this? Just trying to get an understanding of if the Q4 cost pressure is sort of similar on a quarterly basis as we move into '27?

And just on pricing, I understand you won't quantify it for us exactly today, but is it designed to offset most of the cost increase? Is it designed to offset it on a dollar basis or a margin basis? Just conceptually help us understand how you're managing pricing relative to that cost, understanding that the cost inflation is pretty volatile here. But how are you thinking about that conceptually?

And then last, just we haven't heard a lot about incremental productivity, and you guys have made nice efforts on that front over the last couple of years here. So is there a renewed emphasis on productivity or new programs on that front that can help offset some of this cost pressure?

Thank you so much, Dara, for this sandwich multiple questions. So I will unpack it. So first of all, is the guide down fully related to cost? The answer is yes. There is nothing else that we have factored that in. As I explained, it's really the sudden and abrupt U.S. logistic inflation, specifically post August that is driving that, nothing else.

Question number two is help us look at how are you thinking of 2027? So of course, a few preambles. Number one, as you know, we never guide on next year in our quarter 3 earnings call, and I will not deviate from that. Number two, you're spot on, the current business context remains super volatile and unpredictable. So whatever I'm about to say is with what we know today and only that, and we will need to continue to have a great deal of agility to navigate that.

Now if you allow me to reformulate your question into what are your key intents and assumptions as you start thinking about next year? Number one, growth momentum is one of the scarcest assets in CPG right now, and Oatly has it currently. Our playbook is working, and we will now further -- it will be further completed by the Fiber launch. So what we intend to do in the coming quarters is to continue to fuel meticulously this growth momentum, first, because it's precious; number two, because our [ D&A ] investment is working. So of course, we all need to keep in mind as you model that we will be lapping a much stronger 2026 comp base. So -- but that I don't need to tell you.

Second, we will take pricing with innovation selectively. I'll come back to that. Third, when it comes to the COGS and logistic cost assumptions, at the moment, as I said, history has taught us and taught us in 2026 to be humble and conservative. So at the moment, what we are planning is the worst of '26 going into 2027. So that's what we have.

Your third question was, how do you calibrate your price increase specifically in the U.S. because here it's already out there. I will just repeat what Daniel very well said. It's designed to cover this cost inflation, no more, no less. So that's the way we look at that.

And finally, I'm super happy that you bring the productivity question. Allow me to step back first. When we reflect with Daniel and MJ, we are at a moment in our company history where we are creating growth momentum, and we are delivering now structurally profitable growth. And therefore, we view our job as accelerating this value creation despite the external challenging environment. We passionately turn around this business, and we are not prepared to slow down the value creation journey we have initiated. So what does it mean?

First of all, it means that we will continue to deliver COGS and supply chain cost progress. I think the last 3 years journey you were kind enough to refer to has demonstrated our ability to do it and we will continue it as a permanent. Second, when it comes to G&A, specifically, we are chasing productivity and overhead,

and we do that on 2 fronts.

First, we are currently decisively attacking all remaining inefficiencies in our organization, in the way we work, in anything that is not directly related to sales, consumer saving, customer saving and being really at the forefront of delivering our mission. The second lever is continuing our duty to boost the impact of our investment. Every penny we invest is precious, and it is our job to maximize this investment.

Beyond that, you will see us continue to very actively drive all mix levers, channels, customer, portfolio, innovation. And as we said, we will implement pricing. So all of this combined, you see us continuing decisively to fuel the precious growth momentum we have created in order to accelerate our value creation.

[Operator Instructions] Our next question comes from Samu Wilhelmsson with Nordea.

Kind of 2 questions regarding the cash flow part of the business. You, MJ, clarified wonderfully there that you expect Q4 cash flow to improve lower CapEx and no repeat of the inventory build and better payables. But are you able to quantify a bit more on the expected contribution from each of the 3 items? And maybe also that if the $18 million Q3 free cash outflow, how much would you consider timing related for that versus underlying cash consumption that will not reverse? So that's the first question. We can take that first.

Sam, this is MJ, Marie-Jose. So let me take. Can you hear me well? Just checking.

Yes, I can hear you.

Perfect. So let me start with Q3, right? So as you mentioned, a negative $18.4 million in free cash flow. But I'm sure you noticed the nice progress in the cash management since 2023. And you can see that, by the way, in the deck, right, where Q3 2023 was $49 million of cash burn, and 2024 was $27 million of cash burn.

Also, if you recall, when we discussed back in July, we mentioned those phasings. So clearly, what you should recall into -- going into Q3 numbers is that most of it is a phasing impact. And it's a phasing impact, as we discussed from CapEx timing shift, which we called in Q2 that we will see that going into Q3 because don't forget, right? When we were in Q2, we told you that our free cash flow outflow were coming better than expected because of the timing. So one was driven by CapEx. The other one, as we called in our prepared remarks, was driven by larger inventories because we are building some innovation, so inventory in order to ship that in Q4 and later.

And the last thing is the calendar switch that we had from a payable standpoint. So most of the impact of the $18 million are very much driven outside of the average that you should consider from the timing.

Going into Q4, what we expect from an improvement standpoint? First, you should expect a year-over-year improvement as well as a sequential improvement. Where this will come from? Smaller CapEx because, again, Q3 was higher than what we expected, and we don't expect that to repeat in Q4. The inventory build, as we just -- as I just told, which was more than $11 million is not as well expected to be repeated in Q4. And last, the benefits of payables, we expect that to see in Q4.

So again, what I want you to keep in mind is that cash management improvement, year-to-date cash flow in line with our expectations, fully funded, confidence towards our trajectory of free cash flow positive totally intact and supporting the trajectory of EBITDA growth as well as we used to say profitable growth in general.

And I hope I answered to your Q3 and Q4 questions.

Yes. Yes, indeed. Understood. Maybe just a follow-up because you ended Q3 with $23 million of cash and then obviously, the unused RCF. But I guess the free cash flow by all means would also be negative for Q4 given your guidance. So do you have any, let's say, minimal liquidity level you would say comfortable operating with? And how much liquidity buffer you would expect to have before achieving that positive free cash flow?

So the how much, Samu, I'm not going to answer. If the question is, are you comfortable in order to operate with the cash you have in the bank, the answer is 100% yes.

Thank you. I would now like to turn the call back over to John Baumgartner for any closing remarks.

Thank you, operator, and thanks, everyone, for joining today. Any follow-up, feel free to reach out. Have a great day. Thank you.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Hello, and welcome, everyone joining today's Oatly Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to [ John Pam Gardner ], Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us today. On today's call are our Chief Executive Officer, Jean-Christophe Flatin; our Global President and Chief Operating Officer, Daniel Ordonez; and our Chief Financial Officer, Marie-Jose David.

Please review the cautionary statement regarding forward-looking statements and other disclaimers on Slide 3. And which are integrated into this presentation and includes the Q&A that follows. Please also refer to the documents we have filed with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

Also, on today's call, management will refer to certain non-IFRS financial measures, including adjusted EBITDA, constant currency revenue and free cash flow. Please refer to today's release for a reconciliation of non-IFRS financial measures to the most comparable measures prepared in accordance with IFRS. In addition, Oatly has posted a supplemental presentation on its website for reference.

I'd now like to turn the call over to Jean-Christophe.

Thank you, John, and good morning, everyone. Slide 5 features of key messages. First, our second quarter kept a very successful first half with strong volume growth and positive mix driving our revenue momentum. The results reinforce the success of our growth playbook and notably, innovation that solidifies our identity and appeal as a full beverage company. The positive impact of our execution is evident in our expanded distribution in both retail and foodservice outlets. Second, we are driving improvements in our strategic needs of channels, customers and products to enhance our underlying profit margin.

As expected, the second quarter included headwinds from cost pressure due to the conflict in the Middle East. In addition to absorbing this financial impact, we are choosing to invest for growth while continuing to improve our structural profitability. Third, looking at our full year guidance. We are upgrading our revenue guidance while remaining confident in maintaining our outlook for 2026 adjusted EBITDA. With what we know today, our full year outlook for EBITDA takes into account absorption of increased costs, including from the Middle East conflict, which remains unchanged relative to our expectations communicated in April. Our plan also reflects continued investments for further growth.

Turning to Slide 6. Here, you can see our solid second quarter score card for important KPIs. Our revenue grew by 15.2% and 12.7% in constant currency. Our gross margin reached 33.9%, which represents an improvement of 140 basis points compared to last year. Our adjusted EBITDA was positive $0.4 million and 0.2% of our net sales. This is an improvement of $4 million versus last year despite reinvestments and the absorption of headwinds, including from the Middle East conflict. Revenue momentum and a resilient bottom line show progress in building a stronger growth model in a profitable manner.

Finally, our free cash flow in the quarter was a negative $0.6 million which is an improvement of $4.6 million versus last year. Our business plan remains fully funded and we maintain focus on achieving positive free cash flow, a milestone that will be reached through putting on all available levers including continued improvement in the P&L and working capital.

Slide 7, reiterates our focus areas for the rest of 2026. As Daniel will turn outlined, we continue to see positive traction from our investments and brand building. As they will exceed our expectations, we remain focused on executing our growth playbook. Second, we continue to navigate the uncertainty and valuability created by the conflict in the Middle East. I'm pleased to report that our proactive approach has helped us manage the related impact on our business. In the second quarter, costs matched our expectations and based on what we know today, the pressure that we expect in the second half remains consistent with our initial outlook communicated in April. The global cost impact has been largely fuel-related, is directly in logistics or indirectly through areas such as packaging.

As a reminder, we are utilizing this disruption in part to evaluate and improve the flexibility in our supply chain. Finally, as it pertains to China, our strategic review is ongoing, and we intend to complete this review prior to the end of the year. We continue to evaluate our range of options, including a potential carve-out. Our goal is to accelerate growth and maximize the value of this business. We will update the market on our progress as necessary.

In closing, Slide 8 summarizes our guidance. In 2026, we expect stronger convention from the rollout of our refreshed growth playbook. We now expect to drive constant currency revenue growth of 8% to 10%, up from our prior outlook for growth of 3% to 5%. Further, we expect to maintain our ability to mitigate the cost impact of the Middle East conflict. Despite this inflationary impact and gross building spending, we believe we are on course to deliver adjusted EBITDA towards the low end of the range of $25 million to $35 million, consistent with our outlook from last quarter.

With that, Daniel, over to you.

Thank you, JC, and good morning, everyone. I will start my discussion on Slide 10. As we enter the second half of the year, are confident remains strong on the results brought by the methodical deployment of our growth playbook. Over the past 2 years, we have focused on the barges to consumption, creating new occasions and driving consumer relevance. We remain well positioned to serve the lactose intolerance community and those who are primarily environmentally conscious in their choice.

However, these segments represent only a portion of our addressable market opportunity. As shown by the success of our growth playbook across European markets, established all new multiple new doors are opening as only pivots to become a full-on beverages company, which is relevant to a much broader population and across multiple new occasions still anchored on the same brand uniqueness, generational relevance with taste, health and sustainability at the core. Our expanding portfolio of flavors and formats drive differentiation in the beverages market undergoing significant change as customers are eagerly renovating their menus and shelves to be more relevant in meeting rising expectations of younger generations. Closing the loop relevance is manifested again through the brand's iconic live events and digital presence.

So first, let's discuss our thought leadership in setting global beverage trends on Slide 11. As we did in Berlin with Oatly on the rocks in October last year, last month, we hosted 250 key players from the food and beverage industry at the aftertaste event at the Flatiron District in New York, attendance included members of the media, trendsetting leaders in coffee and beverage, key commercial partners, culture opinion leaders and creators. In addition to sharing some of our newest flavors and exciting drinks innovation, we hope that follows that explore how new generations are changing the coffee culture, social media's influence on beverage development and other discussions at the forefront of this space. In the following weeks, the event generated over 17 million media impressions and reached over 9 million people online globally.

The event was one of our largest brand investments in North America this far, a clear manifestation of what local relevance with global scale means for the Oatly brand.

Building on these on Slide 12, you see the latest iteration of our recipes look book that is hitting this summer in full. So far, we have introduced 63 new drinks, many of which have become category standards, like, for instance, Coconut Matcha Cloud, Salty Banana Split and the Matcha Jell-Oat Shot. They are open to the public, representing the backbones for only progressive innovation, and we're highly confident in our ability to continue to surprise and set the industry space.

On Slide 13, you can see how prompted by the look book and with the recent expansion of our chronic Barista offering, notably with the launch of Cold Foam, Oatly becomes increasingly relevant to the growing refreshment and mixology movement, significantly expanding the creativity of our foodservice partners. The most promising drinks make it all the way into the retail space for in-home consumption as seen on Slide 14 with the recent successful launches of Popcorn, Churros and Coconut flavor Barista, as well as the expanding matter range. This model explains why we are growing penetration more strongly with younger consumers, and we view this demographic as strong foundation for multiyear's growth.

On Slide 15, you see a concrete example of the cultural relevance of the Oatly brand at global scale with the recently announced second iteration of our partnership with Nespresso present in over 220 boutiques across 26 markets during the coming months. Next, let's turn to a discussion of our regions to link our strategic initiatives with market success.

In the Europe and International segment on Slide 17, second quarter's constant currency revenue grew by 18%, driven by very strong volume growth. This is particularly impressive as we had volume growth of 9.4% in the last year's second quarter. Contributions are balanced from established and expansion markets and included growth in household penetration across our long-standing markets. At category level, growth in retail takeaway for plant-based beverages has remained solid in absolute terms, up high single digits driven by volume and far above the rate of GDP growth. In our case, the story is even better.

Oat milk is outgrowing other plant-based milks and only is the main driver with strong market share gains across all markets. We believe the growth opportunity across this segment is promising and I'd like to emphasize the reasons why we are outperforming the market on Slide 18.

First, we are engaging the broader beverages industry and seeing strong traction as taste, refreshment and health combined are particularly relevant to the young. Secondly, we're steadily evolving our strategic choices on channels and portfolio to be decisively accretive to our profit margin and volume together with the pipeline of new retail and food service customers that underscore our outlook for continued strong growth. Finally, the conscious choice we made to decisively expand our geographic footprint in multiple new markets is paying off handsomely. They continue gaining critical mass with growth rates that keep accelerating as we see with an impressive 82% growth year-on-year for quarter 2.

On Slide 19, I would like to emphasize the brand's culture of relevance being part of the local communities in key cities and generating disproportionate level impacts thanks to a seamless brand playbook, and efficient social media strategy. Two very concrete examples. In Mexico City, our loses cafe console the funds of losing World Cup teams through free drinks such as the lost Matcha [indiscernible] reaching so far more than 600 million people globally. In Amsterdam, [indiscernible] some of Europe's best coffee roasters with open inspired signature drinks in one of the bicycle capitals of the world.

We not only delighted the local consumers, but has reached so far over 100 million people globally. It shows the power of our lay book as we see now significant market share and penetration gains in Sweden, our home market. Brand penetration in Sweden is 3x higher than any other key plant-based markets, like, for instance, the U.K. and is home to the most affluent plant-based consumer there is. Growth in Sweden have been flat since JC and I joined back in 2022. But 18 months following the execution of the beverages book, we're now seeing increasing household penetration, notably among younger consumers.

More trial and stronger velocities are driving accelerating growth in our share of new alternative sales, up 10 percentage points in 2023 and we have also gained nearly 2 percentage points of category market share in the past year. This gives us confidence that there is no such thing as a mature market.

Slide 21 shows how our beverages stands drive significantly bigger standout in retail display, geared to both ambiance temperatures, for at home or on-the-go consumption, this impact of presence reflect our importance to retailers to better engage shoppers.

Shifting now to North America on Slide 23. I'm very happy to report that growth keeps accelerating. In the second quarter, the segment constant currency revenue grew by 5.9% year-on-year, driven by positive volume growth of nearly 2%. This performance clearly exceeds the mid alternative category and includes decisive incremental mix effects. At the retail market level, the macro backdrop remains challenged by tight household financial conditions and the saturation of protein-fortified products. Retail takeaway of plant-based products continue to trail of traditional customers vary.

In this context, our growth keeps accelerating strongly thanks to the relevance of our portfolio, steady distribution gains and improved execution. So as we have seen in Europe 2 years ago, macro category dynamics can't be explained by the retail performance alone, especially when that doesn't represent the new beverages playbook. We are conscious and at the same time optimistic about our ability to change this dynamic.

On Slide 24, we see that in retail measured channels, we have reached our near-record high market shares in both old milk and plant-based beverages.

Let's look at our out-of-home channel performance on Slide 25. As previously discussed, we see growing consumer and customer excitement in this space, which is way closer to culture and for us, defines more clearly the underlying category dynamics. I am very pleased to report that momentum from new and existing customers will soon eliminate the headwind from the customers who was previously our largest in this channel. At the end of the second quarter, the related year-on-year headwind to sales has substantially ended, and we have made significant progress diversifying our customer base. This will provide greater balance and resiliency for the channel in the future.

On a like-for-like basis, our go-forward foodservice portfolio continues to grow strong. following the beverage playbook with drinks opted to the local consumer, posting an exceptional 18% growth this quarter. As we discussed before, our confidence is not simply anchored on our growth in the channel, but the fact that we see an identical evolution in the beverage space driven by preferences of the younger generations.

As you see on Slide 26, we're citing significant penetration gains, all stemming from capturing these young generations of consumers. So not enough yet to return the category around in retail but we're confident it is a matter of persevering in execution.

Moving forward, as you see on Slide 27, we expect to gain share of category distribution and new consumers from the full expansion of the new range. We also expect to build breadth and depth across key customers in the mass, club and natural channels. This builds on already solid year-to-date volume growth in the retail and club channel. Our growing appeal among retailers is particularly evident in off-cycle product uptakes, retailers will lease a products outside of the traditional category reset window starting later this year, a significant sign of momentum to our brand.

Last, shifting to Greater China on Slide 28. Although macro headwinds persist in the foodservice channel, our second quarter growth was encouraging. Constant currency revenue grew by 5.6% and included volume growth of 5.5% on a positive offset from the retail channel. Segment sales largely recovered from last year's decline of 6.6%. As JC mentioned, we intend to complete the strategic review this year.

To wrap the business update, I would like to focus on the trajectory of the key business metrics on Slide 29. Strong growth continues to drive a direct positive effect on cost absorption and profit margin, put simply, steady progress on our model to drive profit growth through demand generation, essential to future value creation.

And with that, I will now turn the call over to Marie-Jose. MJ?

Thank you, Daniel, and good morning, everyone. Slide 31 summarizes our solid financial delivery for the second quarter. Aside from strength in Europe, this quarter marked our second consecutive period of positive volume growth in North America following declines throughout 2025. In Q2, we grew net revenue 15.2% and 12.7% on a constant currency basis. Gross margin was 33.9%, an increase of 140 basis points compared to last year's Q2 and the result of efficiencies, including facility optimization, volume absorption, productivity improvements and favorable mix.

Q2 adjusted EBITDA was a positive $0.4 million and an improvement of $4 million relative to last year's Q2. Although the magnitude of year-on-year improvement was smaller than $8.7 million. This year's Q2 absorbed incremental headwinds from a full quarter of cost pressure due to the miles conflict and the anticipated phasing of brand reinvestment. As a reminder, our investment in the growth playbook has been more concentrated in Q2 than the expected average for the year. Considering the strong growth in household penetration and consumption we are pleased with the return on our brand investment. We also remain very pleased with the underlying trajectory of structural profit improvement.

I will now provide more detail about our financial performance. Slide 32 shows the bridging items of our revenue growth. Volume grew 11.2%, price/mix increased by 1.5% and Foreign exchange was a 2.5% tailwind compared to 7.5% last quarter.

Moving on to Slide 33 and the year-over-year gross margin bridge, which shows a 140 basis point improvement. This improvement is explained by 210 basis points from fixed cost absorption and supply chain efficiencies, 30 basis points from product and channel mix basis points from foreign exchange currency tailwinds and partially offset by a negative impact of inflation for 100 basis points.

Slide 34 shows the quarter 2 year-over-year improvement in our adjusted EBITDA. The $4 million improvement was driven by $13.7 million increase in gross profit partially offset by $9.7 million increase in SG&A and over. In SG&A, the increase is driven nearly in equal part by customer distribution costs which are linked to sold volumes and an increase in branding and advertising spend in addition to foreign exchange headwinds that are offset by cost-cutting initiatives. As a volume-driven business, our cost structure scales with growth, and we remain focused on delivering profitable growth over time.

Slide 35 shows segment level details. Europe and International grew net sales by 18% in constant currency. However, brand reinvestment and cost inflation related to the Middle East conflict limited year-on-year growth in segment adjusted EBITDA to 0.7 million, yet still achieved a solid adjusted EBITDA margin of 17.5%. North America revenue grew 5.9%. The segment adjusted EBITDA increased by $3.1 million to $7.7 million in article with last quarter as we proactively manage incremental headwinds from brand investments and costs related to the middle is complete. Greater China constant currency revenue increased by 5.6%. The increase was explained by growth in the retail channel that more than offset strong competition and weak macros in the out-of-home channel.

The segment reported negative $15 million in adjusted EBITDA. In Q2, corporate expenses was $1 million lower year-over-year as our continuous focus on increasing efficiencies has more than offset foreign exchange headwinds.

Turning to our cash flow on Slide 36. I reaffirm that our business plan remains fully funded and we remain focused on bringing the company to positive free cash flow following the positive inflection on our adjusted EBITDA. In Q2, free cash flow was a net outflow of $0.6 million, which is $4.6 million better than last year. The year-on-year improvement results from growth in smaller capital expenditures and benefit from net working capital. The improvement exceeded our expectations and reflects our efforts to structurally improve profitability and cash generation. We believe that our progress is increasingly evident and see opportunities for further improvement across all levels of cash flow.

We maintain our expectation that we do not anticipate positive free cash flow for the full year 2026, given the impact of phasing factors in the second half including larger inventories to support volume growth as well as capital expenditures.

Turning to our 2026 outlook on Slide 37. As Jean-Christophe mentioned, at the top of the call, we are renting our outlook for constant currency revenue growth from 3% to 5%, now up to 8% to 10%. Although our outlook implies year-on-year growth deceleration in second half, it is a result of a harder comparison relative to first half. On a reported basis, considering recent FX rate and assuming no change for the rest of the year, we estimate FX to add approximately 200 to 250 basis points to net debt, a stronger tailwind relative to our prior expectations for a benefit of 100 to 200 basis points.

For adjusted EBITDA, we maintain our outlook to deliver towards the low end of the existing range of $25 million to $35 million, including absorption of the cost impact of the middle is contract. Based on what we know today, our expectation for related cost pressure is unchanged from our forecast in April. And we are pleased that proactive management has allowed us to maintain the EBITDA guidance range that we provided pre conflict in February. We expect support from favorable reinvestment savings in SG&A and sustained improvement in gross profit from revenue growth and operating leverage. Our price mix is offsetting cost pressure from the contract in the Middle East and the tight market for freight in North America.

As a reminder, our outlook is provided in the context of what we know today and set against elevated macro volatility. Our fundamentals remain strong, and we continue to execute against our growth playbook while maintaining agility to adapt to external factors. Last, our guidance for CapEx remains unchanged in a range of $20 million to $30 million for the full year. This concludes our prepared remarks. Operator, we are now prepared to take questions.

[Operator Instructions] We'll take our first question from Kaumil Gajrawala with Jefferies.

So well done on the revenue front on the volume front. If we could maybe break down a little bit, Daniel, and some of your comments on the drivers of that growth. But specifically, is it bringing in new users? Is it existing users consuming more? Is there maybe a pricing component to it? So just sort of like more of a breakdown on what is driving some of the acceleration in your revenue growth would be helpful.

Kaumil, great hearing from you. Thank you for the well done. That's certainly the sentiment here. I agree with you, we see momentum getting stronger. The specific answer to your question, is it existing or new? It is certainly both -- in both regions, if I focus in North America and in Europe and international is existing and new, with existing consumers and new consumers, its existing customers and new customers, and its existing, I would say, countries and new countries. That's the kind of in a nutshell, the balance that we see between existing and new.

Now giving you a bit more color on both regions, Kaumil. We see growth accelerating, if I start with Europe, and I take a couple of minutes is accelerating under 2 strong consecutive quarters of growth volume-driven growth with mix on top and we're lapping, I mean, in this quarter, in particular, we're already lapping an almost 10% volume growth in 2025. So we're really seeing incremental demand and we also went fully back to this dynamic where the Oatly growth brings a to milk growth on top and certainly outweighs or outgrow plant based in general. So plant-based by the way, is in solid high single-digit growth.

So outlook positive in this region in Europe and international. Why? Going back to your point about existing and new we see relevance of the beverage new portfolio with focus on new usage occasions, again, new that allow the taste strategy to lead the reframing of the space. Coffee that now is full on beverages with solid defined mix effect. And then the other thing that is working really well, as you saw with 82% growth in Europe and international, the new markets gaining -- maintaining the growth, but gaining in critical mass. So this is concludes Europe and international came with a very nice livewheel. And this, as we always insist 70% of penetration growth ahead of us, right? The users that still don't adopt -- haven't adopted the category.

If you allow me 1 more minute, I'm packing North America for you and your colleagues on the call, very encouraged with the progress we have done still step by step. Two key dynamics here. Again, very strong -- as strong as in Europe, dynamics in out-of-home at the back of the identical consumer strength coffee, flavors, taste, signature drinks, et cetera. And this segment now is 1/4 of the total revenues of this segment and counting. So we're very excited about that and I'm glad not having any questions about legacy customers here, but we are nicely lapping all that legacy effects. And then on top of that, and that's my final remark for you and your colleagues in the retail space, still soft, but clearly outperforming and gaining penetration, again, gaining penetration, gaining share, gaining share of shelf and gaining penetration with very strong velocities and new TDPs already in the making and much more to come in the remaining parts of 2026, but also the early parts of 2027. That's the summary on the drivers, Kaumil.

We will move next with Max Gumport with BNP.

You had another strong quarter of top line momentum, and you've meaningfully raised your top line outlook for the year. And it seems like the costs associated with the Middle East conflict remained unchanged from your estimate in April. So just looking for more color on why your EBITDA outlook was not raised today. It seems like it's likely largely due to increased reinvestment. If that's true, can you talk a bit more about that increased reinvestment?

Thanks a lot, Max, for the question. Great to hear from you, JC speaking here. Let me impact our EBITDA guidance for you, and I will split it in 3 inputs. First, we are clearly harvesting the demand generated growth of margin, and we do that both through volume growth and positive price/mix effects. We are confident that this momentum will continue in H2. So that's the first part of the equation. Second, when it comes to the Middle East conflict impact, we continue not only to monitor, but to absorb it. As I said, it's mostly on logistics and packs, and our full year estimate remains in line with what we have said.

Practically, that means that when you think of Q3 and Q4, we expect a Middle East conflict impact that is broadly in line with what we had in quarter 2. And finally, because we are confident in our beverage playbook, because we see this momentum, we have decided, despite the Middle East complete headwinds to consciously and carefully reinvest behind the growth in Europe and international in order to fuel the success. How are we doing that? These choices are done meticulously market by market, channel by channel. And of course, we will caveat these choices going forward based on our overall profit delivery equation. From a pure phasing standpoint, you heard MJ say in a remark that probably Q2 was the strongest of these growth investments and therefore, you can expect them to continue, but probably on a slightly lower end.

And by the way, we continue to monitor them. So when I got these 3 factors together, has a net impact in an environment that remains super volatile and unpredictable, we choose to be conservative and to confirm our expectation to deliver adjusted EBITDA towards the low end of the range of $25 million to $35 million.

We'll move next with Andrew Lazar with Barclays.

I was hoping maybe to get into a little bit more detail on some of the drivers of growth in North America because, obviously, you're seeing pretty solid growth despite the category remaining weak and despite still in the quarter having been lapping some of the loss of a food service customer. And then also maybe just a little bit on what is going on with the oat milk category specifically even though, obviously, Oatly is outperforming. .

Thank you, Andrew. I will try my best not to repeat myself, but if I do, I apologize upfront. How to bundle. So the drivers of performance were clearly outperforming the market. market share, share of shelf, velocities, all the classic metrics of how we measure success in terms of our competitiveness, the strength of the brand the resilience of our portfolio. Remember, as we are lapping, we have fully lapped portfolio delistings, right, 98% of the I hope you appreciate and giving you more level of detail now, right? 97%, 98% of our portfolio is cleaning beverages, all with strong velocities. That's one driver.

Then customer base, you see we are just clean and meet. So moving forward, what we see the drivers of category growth, we see 2 things that make us feel very optimistic about the outlook. Number 1 is the out-of-home performance. And I know you asked about retail, but we insist out-of-home is where the category is created, and that is where it's giving us, we have growth at the level of growth rates that we see in Europe with the exact identical dynamics. Some of the innovations may be slightly decent, but we see the same dynamics.

The second one is penetration. You saw the chart of penetration, especially on Gen Z. So we are recruiting new consumers into the brand and into the category. And of course, I will pause there because you see what -- why in aggregate that builds up to soft category total. And I cannot comment about the other competitors in the field, right? But you see movements there. that are perhaps not helping with the mathematics. And that's why controlling the controllables, we are obsessively focused on executing. And then if I move into the -- before moving into the outlook, I have another very good data point here to provide, which is our share of old mill.

PDP is now 22% up, up from 17% last year. We generate 30% of the old mall category sales and growing. So we have significant opportunity for further share of shelf gains. So as we said before, we are engaged in a retail all traditional school retail wake-up call for the retail space to adopt what we see in the dynamics on out-of-home. And we have every hope that the new portfolio, when you see what's happening now, and that's my last data point. The off-cycle uptakes in retail, which means normally you will start getting the new distribution, new TDPs coming in February 2027, you will see them coming in late in quarter 3 and quarter 4 already. That gives us hope or that I would remove the word hope.

That is a proof point of the relevance of the portfolio we're bringing in front of consumers and the velocities that they see could be coming. That's pretty much the double click on the question answered to Kaumil at the beginning, Andrew. Let me know if that's okay.

And a quick follow-up would be, anything of note on just the sort of the competitive environment in retail oat milk in North America, that's worth sort of calling out just because you are picking up, as you mentioned, pretty significant share of shelf and market share. I didn't know if there were some that were whatever, deemphasizing the their competitiveness in some way or changing how they're thinking about competing in the category? And if not, that's fine, too, but just curious.

Thank you, sir. Two data points. First, I will insist with our velocities, but what we see -- if you see our highest ever shares first, that is telling you something, right? So with both execution distribution plus velocities gives you that ever highest share. I think it's 31 something for oat milk. It's the highest ever, and we're really close to be in the near future, #1, right? So that's number one. And number two, hey, I'm not going to quote other brands by name, but we all see the same data, right? And some relevant brands losing significant share.

I don't want to quote numbers because you're better than mathematics than me, Andrew, but we're taking the lion's share of that, very, very significant lion's share of that -- of those dynamics, right? So we expect to take share, but I would like to come back to the beginning of your question on comes, which is we're not here only to take share. Take share is good because it means the brand is up there and the velocities are there. We're here to grow this category. And I would like to go back to 22% penetration of oat milk in the U.S. There is an ocean for us to grow this category and multiply growth and multiply value creation. That's our obsession.

We will move next with Dara Mohsenian with Morgan Stanley.

So just wanted to expand on that last point you had mentioned on shelf space opportunity. Clearly, accelerated North American momentum from a top line perspective. You mentioned some of the drivers behind that. Consumer strength also gives you more shelf opportunity going forward. So can you give a bit more specifics there both in terms of existing accounts, the shelf space opportunity this might afford you going forward? And also, are there new partner opportunities that are emerging for you as you look out to 2027?

Yes. I'll give you -- I mean we've got -- you know our HCV numbers, right? We're up there. We -- I think when JC and I walked in, we were at 32%. We're closing into 50s, which means that we have made significant progress in terms of presence in most accounts, believe significant without penetrating the least accretive accounts, we have significant head space to grow in ACV. We have significant growth opportunities in clubs as well, which is qualified as a nonmeasured channel and which we're doing pretty well. So you see, I prefer not to go into specific details or names here, but we have significant opportunities on TDPs and ACV, right?

If I look at 2027, it's more TDPs than ACVs and I'm giving you a bit of a hint. The emphasis is more -- and this is why the GDPs are no ACVs go back to the root cause of the wake-up code to the retail space, the traditional retail space, which is portfolio, right? The matter of all opportunities for this category is to adopt the new beverage playbook, the new beverage dynamics. The dynamics that Gen Z is enjoying in North America at the moment when they go to a food service account. That's what we need to see in this old and traditional space. And that's portfolio. And therefore, when you look at what we are in Europe, what we call the taste-driven portfolio.

This is what progressively, you will see the different accounts adopting in North America. And then we chose not to make a specific remark today. But we are super excited on how in the U.S. and as well in Europe, the search and the uptake for gut health and fibers seems to be significantly increasing. And as we are an ultimate company that comes from the good of oats, we see a significant opportunity there. Nothing to announce today, but stay tuned because we have exciting stuff coming up in the next few months.

Great. That's helpful. And then I just wanted to get a bit of an update on the cost side. Obviously, more reinvestment this year. It looks like it's working with the revenue yield you're getting from that, although sometimes revenue upside can lead to more reinvestment also. So there's a bit of chicken and egg dynamic there. Just as you think and look out to 2027, do you expect generally to increase the pace of investment in advertising spend over time? How do you think about that conceptually? And also as part of that, just as you look at your pipeline of productivity maybe give us an update on your progress in 2026, but also some of the key priorities from a productivity standpoint as you look out to 2027?

Thank you, Dara. I think far too early to discuss '27, so I'll focus on '26. The first point is volume is clearly yielding cost improvement for us on both sides of the Atlantic and its volume absorption, but it also allows us to bring more efficiency in the system. Of course, while you don't see that fully panning out in our gross margin on EBITDA is because of the Middle East conflict impact we have been quoting. So what you see at the moment is really the net between these 2 pictures. Where are we? We are pleased and confident about the delivery of our productivity improvements and they continue along the same lines that we have been pursuing since 4 years since Daniel and I joined the business, which is simplification, lean asset model and continue to push efficiency and quality at the same time across our supply network.

So not the place to go into infinite details, but just do we have a plan? Yes. Is that building what we expect? Yes. Do you see the full picture of that? Not yet because of the Middle East impact. And we believe in continuous improvement. I will end up there with that philosophy, which means, of course, we have a permanent pipeline of improvement projects that keep going and will continue in '27.

And at this time, there are no further questions in queue. I will now turn the meeting back to [indiscernible] for closing comments.

Thanks, Nikki, and thanks, everyone, for your participation today. Feel free to reach out with any follow-ups. Have a good day.

Thank you.

Thank you. Take care. Bye.

Thank you, Nikki.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Board of Directors. I really want to welcome you to the 2026 Annual General Meeting of Oatly Group AB, and I hereby declare the general meeting open. Before we move on, I would like to introduce the people with me on the podium. With me, I've got to my left, Jean-Christophe Flatin, the CEO of Oatly.

Thank you.

Seated at the podium also are Shoan Panahi and Greta Ekblom. Thank you for joining us from our legal adviser White & Case, who've got huge experience in handling general meetings in public companies. Present at the general meeting as well is our certified public accountant, Fredrik Norrman.

Prior to the general meeting, it's been possible for shareholders to vote by submitting a postal vote. We note with great pleasure that 264 shareholders representing about 50% of the vote in Oatly have used this opportunity, and I want to thank them for it. Anyone who wishes to speak is asked to state their name first and preferably the number of shares they represent. I would also appreciate if you could turn off your cell phone.

If you allow me now, let us proceed to agenda item #2. We want to elect the Chairperson of the AGM. As you're all aware, it's been possible to vote in advance by submitting a postal vote, and we therefore know the outcome of the first resolution item already. Oatly's Nominating, Corporate Governance and Sustainability Committee has proposed that Shoan Panahi from White & Case, here to my right, is elected Chairperson of the AGM. The proposal has been approved by more than 99% of the votes. So with that result, I will hand it over to you, Shoan.

Thank you, Eric. Though I wonder who that person...

The minutes will be taken by me and will eventually be published on Oatly's website. I would like to inform you that it may contain personal data relating to shareholders who make contributions here at the meeting today. I would also like to inform you that today's meeting will be broadcasted over web link in accordance with the Board of Directors suggestion.

The meeting will be held in English in order for Oatly's international shareholders to be able to follow the meeting over the web. I would also like to inform you that all of the shareholders who are entitled to cast their vote already have cast their votes by postal votes. Therefore, we will not ask the meeting if the proposals may be approved here. And instead, we will state which proposals that have been approved by the required majority. Greta, could you explain how the voting list is drawn up?

Yes. So anyone who wishes to attend the AGM must be recorded in the share register maintained by Oatly Sweden AB as of 11th May 2026 and must have given notice to the company no later than the date specified in the notice of the meeting. A list of shareholders who have registered to attend the meeting, including those who have chosen to vote by post has been distributed and the shareholders who are here today have been ticked off at the entrance.

Based on the postal votes received, we can confirm that agenda item #3 has been approved by the required majority. I find that the list will constitute the voting list at the meeting. Item #4, approval of the agenda. The proposed agenda is included in the notice and the materials distributed here today. And based on the postal votes, we can confirm that agenda item #4 has been approved by the required majority.

Election of person to verify the minutes. The meeting shall elect a person to verify the minutes. The Board of Directors proposes that Greta shall verify the minutes in addition to myself. The assignment to verify the minutes also includes verifying the voting list and that the received postal votes are correctly reflected in the minutes of the meeting. Based on the postal votes received, we can confirm that agenda item #5 has been approved by the required majority.

Item #6, determination as to whether the AGM has been duly convened. Oatly has convened this meeting by publishing the notice on Oatly's website and in the official Swedish Gazette, Dagens Industri on 10th of April 2026. Based on the postal votes received, we can confirm that agenda item #6 has been approved by the required majority.

Item #7, submission of the annual report and auditor's report and the consolidated annual report and auditor's report for the group. The annual report and the auditor's report as well as the consolidated annual report and auditor's report for the group have been available on our Oatly's website, Oatly's head office since 29th of April 2026. The documents have also been sent to the shareholders who have requested it. Hereby, I give the floor to Fredrik Norrman, Oatly's certified public accountant, who will present the auditor's report.

Testing. Can you hear me?

Perfect.

Mr. Chairman, shareholders, my name is Fredrik Norrman. I have been granted the opportunity, the responsibility, of course, as well, to be the main responsible for the audit of Oatly AB. The elected audit company is Ernst & Young. Ernst & Young was elected already back in 2019 as the first year and 2025 has been my first year as the main responsible.

And just a little bit of information about myself. I've had this role as audit -- I've been working for EY for 23 years now, time flies. My main responsibilities during these 23 years has been manufacturing companies in a listed environment, both in the U.S. and in Sweden. And what's the purpose and the scope of the audit then? Yes.

So the audit standards require us to be -- to plan and perform the audit in accordance with standards and express an opinion about the reasonable assurance whether the financial statements are free of material misstatements, whether due to fraud or error. The audit is also, of course, designed considering the organization of Oatly AB and covers a large part of the assets, liabilities and revenue and expense.

And the conclusions, we confirm to the AGM that we are independent with respect to the company and in accordance with professional standards. We also confirm that the consolidated financial statements present fairly in all material aspects, the financial position of the company as at December 31, 2025, and the results of its operations and its cash flow for the year then ended is in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Hence, I recommend the AGM to do three things: approve the financial statements, including the balance sheet and income statement; two, to approve the allocation of profit based on the Board's proposal and also grant the discharge of responsibilities for the Board and the CEO.

Thank you, Fredrik. Based on the postal votes received, we can confirm that this agenda item has been approved by the required majority and that the meeting approves that the accounting documents and the auditor reports for the financial year 2025 have been submitted. Now I give the floor to Jean-Christophe Flatin, Oatly's CEO.

Thanks a lot, Shoan. Hello, everyone. Thank you for your presence for you here physically present, and thank you for your attention and interest for those watching us remotely. So it's my pleasure to give you a business update, the state of the union as our American friends would say. And we start with a few important legal disclaimer that I put in front of you and I move to the next one.

Here are the few key messages I want you to take away from the status of the business today. As you can remember, we have run a deep transformation of this business over the last three years. And as an outcome of that, I'm convinced we now have a much healthier, stronger business with clear strategies, clear accountability, stronger margins and definitely a significantly improved profitability.

That progress, I'm happy to report, has continued in the quarter 1 of 2026 we reported to the public market just a few weeks ago. And as we look ahead, we remain confident that by continuing to executing our mission and executing the strategies we have chosen, that will enable us to create strong long-term shareholder value. Let's have a quick look at the recap of where do we come from.

I talked about the 3 years transformation, and I think some figures are important to illustrate that journey. If we compare to the year 2022 that you see on the left-hand side of the chart, our revenue grew by 19% or $140 million to an all-time high of $862 million at the end of 2025. Our adjusted EBITDA has improved by $275 million over that same period of time. And our free cash flow equally improved by an amount of $436 million over the same period of time.

These figures are illustrating that we are clearly making good, healthy progress as we drive profitable growth. Let's zoom in on our quarter 1 2026 scorecard, which is the most recent results we shared publicly. Our revenue grew by 15.6% or 8.1% when we look at it in constant currency. Our gross margin has now reached 33.4%, which represents an improvement of 188 basis points as compared to last year, while our adjusted EBITDA reaches positive $5 million, which represents 2.2% of our net sales and an improvement of $8.7 million versus last year.

This combined improved performance, both on top line and bottom line, confirm that we remain totally focused on driving growth and impact in a disciplined and profitable manner. And we believe simply this is the winning recipe for our company. Finally, our cash flow in the quarter was a negative $11.7 million, which is an $8.8 million improvement versus last year.

It's important that I confirm our business plan remains fully funded and bringing the company to structurally positive free cash flow is very important to us. We fully intend to drive the business to that milestone, not just from improvement from the P&L, but by pulling all available levers to us, including working capital.

Let's look at why we are doing that. I know these are also figures, but they are rooted in our mission. To be clear, we have driven these improvements to enable our mission in helping people live healthier life without recklessly taxing the planet and the planet resources. As we continue to improve our business and the financial results, it is extremely important to us that we don't lose sight of why this company exists.

Our mission is a very important part of our culture, and I believe it makes Oatly truly unique. We have maintained our mission and purpose throughout this transformation, and we remain fully committed to it going forward. This slide shows how we measure our progress on the mission. The primary metric we look at is the CO2 savings of making the switch from Cow's dairy to Oatly since that switch is critical to the planet.

So on the left-hand side, on the pink graph, you will see that in the past 6 years, we estimate that we have enabled consumers to avoid drinking over 1.6 billion liters of cow's milk by choosing our products instead. This translates on the right-hand side of the chart, over 1.4 billion tonnes of greenhouse gas avoided as our consumers switched from cow's milk to Oatly product. This was estimated using a methodology developed with Quantis.

I encourage you to read more about this and all the sustainability efforts we are making in our full sustainability report, which is available on our Investor Relations website. I am very proud of this progress. We have plenty of work to do to achieve our long-term goals, but clearly, we are on our way for having an impact. As we look forward, I'm equally proud to say that our mission will remain the same.

We exist to help people live healthier life without recklessly taxing the planet resources, and we want to contribute to change the food system for the better. The mission works hand-in-hand with our strategy for shareholder value creation. Just in retail stores around the world, the dairy market is estimated to be nearly $600 billion of value. And the food service market, which is not measured in this figure, add a significant amount to this.

So total plant-based is a small fraction of the overall dairy market, which means that there is plenty of room to grow from here. As we execute our strategy of converting consumers to our oat-based products, we expect to see a significant margin expansion and profit improvement. And we expect that profit improvement to translate into strong, sustainable long-term shareholder value creation. So I thank you for listening, and I give back the floor to Shoan.

Thank you. Fantastic. Let's proceed to agenda item #8, resolution regarding adoption of the income statement and balance sheet and the consolidated income statement and the consolidated balance sheet for the financial year 2025. Oatly's auditor recommends that the AGM adopts the profit and loss account and the balance sheet as well as the consolidated profit and loss account and the consolidated balance sheet included in the annual report for 2025.

And based on the postal votes received, we can confirm that agenda item #8 has been approved by the required majority and that the meeting resolves to adopt the profit and loss account and the balance sheet as well as the consolidated profit and loss account and the consolidated balance sheet included in the annual report 2025.

Let's move on to the resolution regarding the allocation of the company's profit or loss in accordance with the adopted balance sheet. The Board of Directors proposes that no dividend is distributed for the financial year 2025 and the company's results for the financial year 2025 is carried forward. And based on the postal votes received, we can confirm that agenda item #9 has been approved by the required majority and the meeting approves the Board of Directors' proposal.

Item #10, resolution regarding discharge from liability of the members of the Board of Directors and the CEO. Oatly's auditor recommended that the AGM resolves to grant the members of the Board of Directors and the CEO discharge from liability for the financial year 2025. Based on the postal votes received, we can confirm that agenda Item #10 has been approved by the required majority and that the meeting approves the grant of discharge from liability. We also note that the members of the Board as well as the CEO did not partake in the decision regarding their own discharge from liability.

Item #11, determination of the number of members of the Board of Directors. Oatly's Nominating, Corporate Governance and Sustainability Committee proposes that the number of the members of the Board of Directors elected by the general meeting in accordance with Oatly's Articles of Association shall be 10 without deputy members. And based on the postal votes received, we can confirm that agenda Item 11 has been approved by the required majority and that the meeting resolves in accordance with the Nominating, Corporate Governance and Sustainability Committee's proposal.

Now we come to Item #12, election of Members and Chairperson of the Board of Directors. Oatly's Nominating, Corporate Governance and Sustainability Committee proposes that Eric Melloul is reelected as ordinary member of the Board of Directors until the close of the Annual General Meeting 2029. It also proposes that Stefan Descheemaeker is elected as new ordinary member of the Board for the period until the close of the Annual General Meeting 2029.

And lastly, it proposes that Martin Brok is elected as Chairperson of the Board for the period until the close of the Annual General Meeting 2029. And based on the votes received, we can confirm that this item has been approved by the required majority and the meeting resolves in according with the Nominating, Corporate Governance and Sustainability Committee's proposal. Eric, would you like to say something to Martin when passing on, on the Chairperson role?

Welcome, Martin. No, first of all, I want to say how much I've been proud really to lead the Board of Oatly for the last almost 10 years. It's been an incredible ride, and I've been really honored to be able to support the management team, specifically in the last 3 to 4 years in delivering what's been an outstanding change and turnaround plan and preparing for what's going to be, obviously, a very promising 5 to 10 years. So thank you for having me.

Thank you for having me. And then I want to welcome Martin. Martin is an exceptional person. He brings with him lots of experience in consumer branding companies around the world, whether it's Nike or Starbucks or many others. He's got an incredible style. He will, I'm sure, continue to challenge and support the management team as Chairman of the Board. And he can count on my time and contribution to make it happen. So welcome, Martin.

And in the name of the management, we would like to thank Eric for his stewardship of the Board and his partnership with us over the last 4 years. Thank you, Eric.

Thank you. Let's move on to the formal pieces of the meeting. So now we have come to agenda item #13, determination of the remuneration to the members of the Board of Directors. Oatly's Remuneration Committee proposes that compensation shall be allocated to the directors in accordance with the committee's proposal included in the agenda Item #13 in the notice to the AGM.

And based on the postal votes received, we can confirm that agenda item 13 has been approved by the required majority and that the meeting resolves in accordance with the Remuneration Committee's proposal. Item #14, fees payable to the auditor. Oatly's Audit Committee proposes that the auditor fees paid in accordance with the approved invoices. And based on the postal votes received, we can confirm that agenda item 14 has been approved by the required majority and the meeting resolves in accordance with the Audit Committee's proposal.

Item #15, election of the auditor. Oatly's Audit Committee proposes that the registered auditing company, Ernst & Young Aktiebolag is reelected as auditor for the period until the close of the AGM for the financial year 2026. Based on the postal votes received, we can confirm that agenda Item #15 has been approved by the required majority and the meeting resolves in accordance with the Audit Committee's proposal.

Now we come to two technical items. The first one is Item #16, resolution regarding implementation of LTIP 2026 to 2028 incentive program and increase in the overall share limit and issuance of warrants of Series 2026 and approval of transfer of 2026 warrant instruments.

The Board of Directors of Oatly proposes that the AGM resolves to implement a new long-term incentive program, LTIP 2026 and 2028. For Oatly's executive management, top key personnel selected senior key personnel and to increase the overall share limit under Oatly's incentive plan. The proposal also includes the issuance of up to 67,263,960 new warrants of Series 2026 and approval of transfer of 2026 warrant instruments to secure delivery and settlement of awards under this LTIP.

For the avoidance of doubt, the terms and conditions of LTIP 2021 to 2026 shall not be amended through this proposal and will remain in force.

Hello, and welcome to Oatly's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that today's call is being recorded, and I'll be standing by. It is now my pleasure to turn the meeting over to Blake Mueller. Please go ahead, sir.

Good morning, and thank you for joining us today. On today's call are our Chief Executive Officer, Jean-Christophe Flatin; our Global President and Chief Operating Officer, Daniel Ordoñez; and our Chief Financial Officer, Marie-Jose David.

Please review the cautionary statement regarding forward looking statements and other disclaimers on Slide 3, which are integrated into this presentation and includes the Q&A that follows. Please refer to the documents we have filed with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.

Also, on today's call, management will refer to certain non IFRS financial measures, including adjusted EBITDA, constant currency revenue and free cash flow. Please refer to today's release for a reconciliation of non IFRS financial measures to the most comparable measures prepared in accordance with IFRS. In addition, Oatly has posted a supplemental presentation on its website for reference.

I'd now like to turn the call over to Jean-Christophe.

Thank you, Blake, and good morning, everyone.

Slide 5 are the key messages I want you to take away. First, we have delivered a solid performance in quarter 1, both on top line and bottom line. This continues to build our confidence in our journey to accelerate profitable growth.

Second, we continue to see clear signs that our growth playbook is working. It's already driving real impact in Europe and International as well as increasingly so in North America. We are, therefore, focusing on executing against this playbook more broadly in order to continue to drive further incremental demand.

And finally, we are reaffirming our 2026 guidance in a context where the impact of the conflict in the Middle East is already visible in our costs from March onwards and brings further uncertainty for the rest of the year.

Turning to Slide 6. Here, you can see our solid quarter 1 scorecard on our most important KPIs. Our revenue grew by 15.6% and 8.1% in constant currency. Our gross margin reached 33.4%, which represents an improvement of 188 basis points as compared to last year, while our adjusted EBITDA reached positive $5 million, which represents 2.2% of our net sales and an improvement of $8.7 million versus last year.

This combined improved performance on top line and bottom line confirms that we remain focused on driving growth and impact in a disciplined and profitable way. We believe that this is a winning recipe for our company.

Finally, our free cash flow in the quarter was a negative $11.7 million, which is an $8.8 million improvement versus last year. Our business plan remains fully funded and bringing the company to structurally positive free cash flow is important to us. We fully intend to drive the business to that milestone, not just from improvements in the P&L, but also from putting on all available levers, including working capital.

Slide 7 confirms our focus areas for 2026. As Daniel will outline, we are seeing very positive traction on our refreshed growth playbook, and we will be doubling down on its execution.

While we do not have a detailed update for you today, in 2026, we plan on completing the strategic review of the Greater China segment. We continue to evaluate a range of options, including a potential carve out with the goal of accelerating growth and maximizing the value of the business. We will update the market on our progress as necessary.

Finally, we are navigating the context of uncertainty and volatility created by the conflict in the Middle East with a clear objective to minimize as much as possible its impact on our performance. We are permanently adapting our end to end supply chain choices to ensure we could serve consumers and customers.

When it comes to the global cost impact, they are so far mostly fuel prices related, either directly in logistics or indirectly like in packaging. We are mobilizing our culture of efficiency and frugality in order to mitigate those and continue to adapt with agility to this pretty unpredictable context.

In this context, Slide 8 reaffirms our guidance. In 2026, we expect the continued rollout of our refreshed growth playbook to drive an acceleration in our profitable growth. Specifically, we expect to drive constant currency revenue growth of 3% to 5%. And with what we know today about our ability to mitigate the cost impact of the Middle East conflict, we expect to deliver adjusted EBITDA towards the low end of the range of $25 million to $35 million.

With that, Daniel, over to you.

Thank you, JC, and good morning, everyone.

I will start my discussion on Slide 10. Over the past 2 years, we have methodically deployed this new playbook with the objective to attack barriers to consumption, drive relevance and increase availability. We are confident it is working, as we see continued positive results in Europe and increasingly so in North America, as we will discuss today.

Staying true to what makes Oatly, this playbook change is founded on the strategic choice to be relevant to a much broader population, a decision not just to aim at growing consumption within our historical consumer base, the lactose intolerant and the environmentally conscious, but to also expand our target market to the upcoming younger generations to drive true incremental consumption growth.

That means we're focusing on our strength within beverages. This is taste and health instead of trying to mimic dairy in all its forms. In this exciting space, the room for penetration growth is enormous, and it is precisely where our strengths and assets are rooted.

As you heard us say, an alternative to dairy no more, but an experience canvas for the beverages market, working with customers to renovate their menus and shelves to be more relevant, more provocative and more on trend with today's consumer.

Taste & Health defined a clear high ground for the new generations, in particular for this category, but we have also adapted how we communicate to them. They are digital natives, and we have migrated from analog heavy individual advertising to a more relevant, integrated and digital first approach, always blended with iconic culture making life events. So as we say we're doubling down on the playbook, let me show you some examples of what we mean by that and in which specific areas we do invest.

On Slide 11, you see how we're doubling down on our taste leadership in beverages. Our iconic Barista product remains our top selling item and continues to grow very fast. And the flavored Baristas such as the caramel, vanilla and popcorn flavors keep showing healthy growing velocities, proven to be a hit with consumers.

As anticipated last time, we have launched in the last few days additional flavors in selected markets such as churros or coconut, and we're expanding the matcha range with the addition of a strawberry flavor, which is the most popular combination in foodservice. This will enable customers to create an even wider range of drinks.

I am particularly excited to say that our Cold Foam Barista has already reached the menu of many of our top customers. It can be added on top of any beverage, hot or cold. Plant based cold foam options weren't widely available in the market thus far. So this is a breakthrough product that delights consumers and elevates the experience for our foodservice customers.

See, taste is a new platform for Oatly and for the category. This is not just random innovation.

Slide 12 shows the foundation of our unique and differentiated model. We have over 60 beverage market developers around the world who spend over 1,500 hours a week with our out of home customers, deploying our lookbooks and designing recipes to make our customer menus more on trend and therefore, more relevant to their customers.

We are doubling down. We continue to steadily increase coverage across this space, considering every different customer type and adapting our route to market accordingly. As you can see on this slide, I am particularly proud to see how we are sophisticating our service package to be relevant on and offline and deploying a tailored neighborhood attack approach with our already famous Oatly Week concept, like you see in the Barcelona example here.

Finally, I am very excited to see how this is working in the U.S., having experienced it myself in the streets of Brooklyn and the Lower East Side in Manhattan or Venice and the Arts District in L.A.

Slide 13 shows you selected examples of the types of outdoor communications we do, in this case, in the streets of Warsaw in Poland, so Oatly, but the new Oatly in its essence.

Slide 14 shows you another example of the sort of culture creating experiences we do. In this case, a collaboration with AVAVAV, one of the most talked about indie fashion brands at the Fashion Week Milan some weeks ago. While guests and models could enjoy Oatly signature drinks live, the social media impact of this collaboration spread across Europe and North America at the very same time as a true global event.

On Slide 15, you can see the latest and greatest of our social media presence, where most of our brand investment is being deployed, both with brand generated but also user generated content by our brand ambassadors.

Finally, on Slide 16, we demonstrate how the new strategy is helping us to make shelves more exciting and relevant, occupying more space than before, but not only for Oatly, but also for the category as customers start sensing a new momentum.

I am particularly excited to see the first in store executions of the new strategy in Canada. Our team there are doing a phenomenal job anticipating what we're capable of doing in North America.

When we look at the growth trajectory on Slide 17, we see accelerating growth, which gives us additional confidence that the strategy is working. Europe and International keeps on strengthening with another quarter at 14.5% growth in constant currency. That's a stellar performance and a very healthy mix of growth in both the established and in the new markets.

I am very pleased to say that at the back of strong performance across all channels, the North America segment has seen growth in the quarter of 12.3%, excluding the segment's largest foodservice customer, or 3.8% total net growth when you click through to Slide 18. So step by step, we're bringing this segment into its growth path following the European model footsteps.

As we said, we expect it will take longer than in Europe because of the time lag in retail, but we are mildly optimistic that we're reaching a tipping point in this segment.Moving forward, we will continue to focus on the controllables and the deployment of the growth playbook.

Slide 19 shows that we continue to consistently outperform our competition in the tracked channel data, more than ever before. We continue to expand our retail market share in every single European market that we measure, whether it is an established or an expansion market.

And in the U.S., as we continue to lap last year's portfolio delistings, our drinks portfolio consolidated the growth trajectory we started in the fourth quarter at the back of sustained strong velocities and strong distribution gains in the core portfolio, showing record highest TDPs and ACV.

Slide 20 shows that when we look at the European markets in aggregate, since the implementation of the new playbook last year, oats keeps gaining momentum, showing its decisive role in driving the overall category upwards despite most other crops that continue to lose traction.

Slide 21 shows 2 important dynamics that prove the core objective of the new strategy, generate incremental consumption from new younger consumers. First, switching analysis in the core European market shows the ability of the new portfolio to drive incremental sales. Second, as we dig into the data, we see that consumers that are coming into the category via the new portfolio tend to be younger consumers, which we find very encouraging.

As we move into Slide 22, many of you might be thinking how fast can we replicate this in the U.S. Well, first things first, controlling the controllables, we have progressively taken this segment into positive growth and profit.

Out of home continues to grow steadily, 12.4% growth outside the largest customer and at the back of the identical model we've implemented in Europe, enamoring the new coffee and beverages space with Oatly's Magic.

Having signed a partnership with Onyx, recently named one of the most notable coffee specialty brands in the world, is a concrete sign of what's happening in the U.S. Excluding that large customer, this channel represents over 25% of this segment, and we expect it to continue to grow by increasing coverage and by driving more customer diversification.

In retail, our core beverages portfolio now represents over 95% of the channel's revenue. We continue to gain strong distribution points within this portfolio, taking the measured retail channel to 10.5% growth in the quarter and to the record highest market share, breaking the 30% for the first time.

To this, we should add the 150% growth in clubs with opportunities to continue to expand velocities and regions. So the outlook is good.

So while category softness in the measured retail channel continues, we expect that will start changing the moment we are able to list the new portfolio. And I'm happy to say that early customer conversations for the upcoming reviews seem promising.

Now that we have discussed the past, I want to give you a preview of our future plans, as you see on Slide 23. And this is simply a confirmation of the last discussion. You should not expect any significant change, but a relentless consolidation of the new playbook execution.

First, we will be decisively leveraging our fiber credentials by campaigning about the fiber content of our product. Many global health authorities estimate that people have a fiber deficiency of about 10 grams per day. As a company that is rooted in science, our visionary founders have historically advocated for the benefits of fiber in people's diets. So what you see here is just the first step, and you should expect to see more from us in the near future.

Second, step by step, we are working to accelerate the introduction of the new portfolio in the U.S. retail during the upcoming range reviews. While we expect the new listings to start taking place at the back of this year, we also expect that the full rollout will move well into next year.

On Slide 24, I will refer to the progress we're making in China. Consistent with previous discussions, the general context and the price pressure in the foodservice business continues. At the same time, I am pleased to report that the strong development of the retail channel accelerated, doubling in quarter 1 year on year and representing already close to 1/3 of the segment's revenue.

Finally, as JC mentioned, we intend to complete the strategic review during this year.

To finish this business update, I would like us to step back and pay attention to the trajectory of the key business metrics of the year since JC and I joined the business, taking quarter 1 as a reference to make the comparison like for like with today's results disclosure.

Here, you can see how the growth evolution is yielding a direct positive effect in cost absorption and muscle building margin. This has allowed us to continue to reinvest in growth while steadily reducing SG&A, and in so doing, building a more resilient business able to better navigate one off effects like the volatile context we described during the introduction.

Way further to go, but we're confident we're making significant decisive steps in the right direction.

With that, I will now turn the call over to Marie-Jose, MJ?

Thank you, Daniel, and good morning, everyone.

Slide 27 highlights our ability to execute globally with continued strength in the European and International segment and increasingly so in North America. As an illustration, this quarter marked our first period of positive volume growth in North America since Q4 2024, an encouraging signal our growth playbook is working.

In Q1, we grew revenue 15.6% and 8.1% on a constant currency basis. Gross margin was 33.4%, which is an increase of 188 basis points compared to last year's Q1. This was a result of efficiencies across the organization, including facility optimization, volume absorption and ongoing productivity improvements, in addition to a strong mix in Europe and International.

Adjusted EBITDA was a positive $5 million in the quarter, which is $8.7 million higher than last year's Q1. The significant increase in adjusted EBITDA was a result of strong top line growth and gross margin expansion.

I will now provide more detail about our financial performance.

Slide 28 shows the bridging items of our revenue growth. In the quarter, volume grew 5.6%, price/mix increased by 2.5%. Foreign exchange was a 7.5% tailwind compared to 4.8% last quarter. The increase in revenue comes from the execution of our growth playbook, which includes increased consumer relevance through new flavors and formats.

Moving into Slide 29 and the year over year gross margin bridge, which shows the 188 basis points year over year improvement. This improvement is explained by 110 basis points from fixed cost absorption and supply chain efficiencies, 110 basis points from product and channel mix, 40 basis points from foreign exchange currency tailwinds, partially offset by a negative impact of inflation for 80 basis points.

Slide 30 shows the Q1 year over year improvement in our adjusted EBITDA. The $8.7 million improvement was driven by a $14 million increase in gross profit, partially offset by a $5.3 million increase in SG&A and overhead.

In SG&A, our ongoing cost savings actions in areas such as indirect procurement were more than offset by $7.2 million year over year FX headwinds as well as customer distribution costs, mostly linked to higher volumes sold. As a volume driven business, our cost structure scales with growth, and we remain focused on delivering profitable growth over time.

Slide 31 shows segment level detail. Europe and International grew net sales by 14.5% in constant currency, which is another proof that the growth playbook is working. This helped drive a $16 million increase in the segment adjusted EBITDA versus first quarter of 2025.

North America's revenue grew 3.8% in the quarter. The segment adjusted EBITDA decreased by $0.5 million to $0.7 million, driven by higher cost of goods sold, explained by an increase in freight and warehousing costs.

Greater China constant currency revenue declined by 6.4% in the quarter. The decline was explained by strong competition in the out of home channel and partially offset by growth in retail. The segment reported negative $0.8 million in adjusted EBITDA.

Despite these challenges, our team continues to work together to navigate the macroeconomic headwinds in the region while managing the ongoing strategic review.

In the quarter, corporate declined by $4.5 million, mostly as a result of FX headwinds and timing of global branding and advertising expenses. These expenses were partially offset by the ongoing efforts to increase efficiency of spend.

Turning to our cash flow on Slide 32. First, I want to remind everyone that our business plan remains fully funded, and we are focused on bringing the company to structurally positive free cash flow.

For the quarter, free cash flow was a net outflow of $11.7 million, which is $8.8 million better than last year. It is worth highlighting that the free cash flow in the quarter includes annual bonus payments, which would not occur again this year, as well as $3.5 million payments linked to the exit from our production facility in Singapore, which will finish in first quarter of 2027.

I continue to see good progress throughout the company on all levels of cash flow, and I believe we still have room for improvement. While we do not anticipate delivering positive free cash flow for the full year 2026, we do expect that the biggest drivers of our improvement will come from higher adjusted EBITDA and working capital improvements. We will continue to maintain discipline in our investment choices.

Turning to our 2026 outlook on Slide 33. As Jean-Christophe mentioned at the top of the call, we are reaffirming our outlook for 2026. We expect constant currency revenue growth in the range of 3% to 5%. Based on recent FX rates and assuming no change for the rest of the year, we estimate FX to add approximately 100 to 200 basis points to full year net sales growth.

On adjusted EBITDA, as we navigate the impact of the Middle East conflict, we now expect to deliver towards the low end of the range of $25 million to $35 million.

As we stand today, we anticipate Q2 to be lower than our first quarter with visible negative impact from the Middle East conflict, combined with a strong brand investment season. As we move through the year, we expect performance to improve meaningfully in the back half.

This is supported both by a normalization of near term volatility and by the continued rollout of our growth playbook, where investments in selling, branding and distribution, which are front half weighted, are building benefits over time.

As a reminder, this is, of course, only based on what we know today. Importantly, we do not currently view any change in the underlying health of the business. The fundamentals remain strong, and we are continuing to execute against our growth playbook while remaining agile in our ability to adapt when necessary.

Lastly, our guidance for CapEx remains unchanged, which we expect to be in the range of $20 million to $30 million for the full year.

This concludes our prepared remarks. Operator, we are now prepared to take questions.

[Operator Instructions] Our first question will come from John Baumgartner with Mizuho.

Maybe first off for MJ. I'm wondering if you can touch a bit on Europe, the EBITDA delivery there in Q1, how much of that strength was driven by maybe beneficial timing shifts from reinvestment as opposed to delivery that's more structural and more sustainable in nature from operating leverage or product mix?

Yes. So thank you for your question, John. The way to look at Q1, to be clear, and I'm sure you'll recall prior conversations where we always explain our phasing between first half and second half.

So if you look at how we invest, which was your question, we usually weight more on first half than second half. That's point number one. As we continue as well, if I go below just the branding investment, there is as well investment when it comes to the business and the way that we operate for our initiatives.

So if you have to think about the full year, Q1 is weighted more when it comes to investment, branding, selling expenses, initiatives when it comes to SG&A will go more for the year.

Did I answer your question, John?

Yes. Perfect. And then, Daniel, a follow up. The prepared comments noted that the brand communications are emphasizing taste and health. And I'm curious how you think about the health component. If plant based no longer needs to be positioned as an alternative to cow's milk because the category can stand on its own, well, that overlaps now non plant beverages trying to differentiate by including the prebiotics and fiber that's already core to oats.

So the trends seem to be coming to oats overall. It's obviously early days, but how expansive do you think these health efforts can be? Does it open additional opportunities in products like yogurt? Is it possible to leverage health organizations for product claims? Just how do you think about communicating or scaling the health benefits going forward?

Very good. So I could notice 3 questions in one, John, and I would love to take a double click on MJ's answer as well to give you comfort about how we're building EBITDA in Europe.

Listen, 3 things to unpack there. First, as far as Oatly is concerned, we don't see a shift in terms of communication focus. Taste & Health has been part of the brand's voice and vision from the very beginning, at least since the 2012 inception of the contemporary brand vision, right? That's absolutely number one.

Number two, there is no either/or when it comes to the focus on target market, right? It is true, however, as we have said for many quarters to date that there was a bit of a limitation when it comes to lactose intolerant target audience and environmentally conscious, you would say, the epitome of the alternative to cow's milk target audience.

When we look at the young generations, both Gen Z and Alpha, we see that they look at this with a much broader perspective. It's not that being an alternative to milk to cows is irrelevant. It's that they look at taste and health combined as the primary area of attraction to our appeal to consumption, right? And of course, with a double click on sustainability, if you want, or being an alternative to dairy.

And then when it comes to health, we do see momentum. We discussed with you in these discussions before. There is a significant momentum growing in both sides of the Atlantic when it comes to fibers, prebiotics, gut health, and we really, really welcome that with open arms. So there is an incrementality on that. Definitely, yes.

But there is also an incrementality when it comes to the whole combination of taste and health. Mind you, when you see the results that we have just posted, both in the U.S. and in Europe, you see the new consumers coming into the category. And that is not just taste, but it's both taste and health combined, John.

So yes to that, but the incrementality will not only come from health, but from taste and health combined.

Our next question will come from Max Gumport with BNP.

It's nice to see the continued momentum in Europe and the improved growth in North America. And along those lines, with the growth playbook clearly working and gaining traction, I was hoping to get an updated view of how you think about the long term top line growth for both your North America business and your Europe and International business.

Thank you, Max. Is that -- you have a second question, you want to double click on that one?

I will have a second. Let me start with that one.

Very good. Thank you. Just checking.

Listen, let me unpack that to you. You saw first on Europe, we do see the momentum continues to build, right? So before going into the outlook, allow me 1 minute to focus on the now. We have just posted, as you saw, 2 consecutive quarters on the mid teens, and we're clearly generating new incremental demand.

So the important thing here is that we see growth consolidating at Oatly. It's doubling the growth of oat milk and almost tripling the growth of plant based milk. And you see that is a platform that makes us look into the future with different parties.

This combined is giving us a sustained growth momentum in plant based milk of mid single digits, which is strong compared to where we were a couple of years ago.

So that sets you already for a trend. Going into the future, the first thing we look at is that very, very important data point, which the growth comes from younger generations of consumers entering the category. We now have abundant evidence that, that is the case.

So then definitely looking into the future, we look at the 70% penetration headroom we have in front of us. And that's why we believe the opportunity is enormous.

In terms of where we see the growth coming from, number one, a much stronger portfolio, which is fully focused on beverages. And in a way, I'm using this question from you to come back to something that John was asking before.

We will remain for the foreseeable future focused on drinks because it's where we have our assets, where we have our strength, where we have our superiority and where we're winning. And there's a lot of opportunity.

And the other thing to give you a lever for Europe, Max, is the new markets, what we call the expansion markets of the International markets, whether it's France or Poland or Mexico in this segment. You're talking about markets that are large, large in their potential and are building really critical mass.

So the 2 of them combined, a new portfolio and channel expansion in the established markets and the expansion in the new markets, gives you a real, real sweet spot for us to think on a second revolution for plant based drinkers in Europe.

If I now move the attention to North America in the now, I am very encouraged. We are very encouraged by how things are developing in the U.S.

First, what we see happening in coffee and foodservice. We're spending a lot of time with the teams there, and I'm very encouraged to report the progress that you see. For us, why this is important is because it's the best marker for category momentum. This channel is where habits are created.

And excluding the largest customer, this channel represents already over 25% of the segment's revenue and has been growing in double digits for some quarters now.

So when we look ahead, we only see opportunities, Max.

And finally, just to round up on the U.S., on North America, the category remains soft, but there is a very significant part in traditional retail only. And it is strengthening.

If you have checked the latest scanning data, the more Oatly gains traction, the more the category strengthens. And now we're winning, we're outperforming market and competitors with crossing the line of 30% share in oat milk for the first time.

So as the outlook for North America, I would say controlling the controllables. And at the top of the controllables, we put the category development.

Now we do put the category development. And for that, you will see 2 things. First, more visible brand investment, step by step, of course, because you know how we manage, how rigorous we are about our financial equation.

And secondly, a step change in the U.S. traditional retail adopting the kind of portfolio you see in Europe. And I have to underline, step by step, you will see some this year, but the progress will go well into 2027.

Hopefully, that gives you a full picture, Max.

Our next question comes from Tom Palmer with JPMorgan.

It's Elsa on for Tom. So you now expect EBITDA to be at the low end of the full year range, just given some cost headwinds related to the Middle East conflict. Can you walk us through how those cost headwinds have impacted results in the first quarter? And what impact do you expect to see going forward, including any levers you potentially have to offset those costs as we move throughout the year?

Thank you. It's Jean-Christophe. I'll take this one. I mean it's a very important topic, as you can imagine. So I'll take the time to unpack that.

Starting by the key statement that to date, we don't see an impact on demand because of the Middle East conflict. This is why I'm only answering on cost and EBITDA.

So quickly, if we step back, what's the context of this guidance? Remember, everything we discuss today is only with what we know today. We continue to face daily unpredictability and volatility, and we really need to mobilize our agility to react and adapt.

So now going to the heart of your question, when you look at the COGS, what do we see? On one hand, some of our COGS benefit from the fact that we have hedging on a number of energy contracts in our Europe factories.

We have a number of advanced contracts on raw materials, and we have some structural advantages, which are related to choices we have made, like we have a pellet boiler in our Landskrona factory. We have an electric truck fleet in our Europe and International freight to warehouse network. All of that is helping us.

However, on the other hand, the Middle East conflict has brought impacts into our P&L from the month of March onwards, and these costs are specifically fuel price related. The biggest one, shipping and logistics costs, both in Europe and International as well as North America. The second noticeable one is packaging costs worldwide.

So when we do the net of the advantages we have and the new costs we see from the conflict, the net of the 2 is showing a total COGS and logistics net increase, which is already visible in March P&L and that we now expect to be fully at play in quarter 2.

And honestly, too early to be much more precise than that for what could come after quarter 2, which is why when we had to review the full year outlook for this conversation, beyond the normal course of business, it means we have to evaluate both the potential full year cost impact of the conflict on one hand and our a

bility to mitigate that on the other hand.

And having done that, we now expect to deliver adjusted EBITDA towards the low end of the range of $25 million to $35 million.

Our next question will come from Samu Wilhelmsson with Nordea Markets.

A few questions from my side. I could start with North America. You mentioned that North American EBITDA was pressured by warehousing and transportation. So I was just wondering, is there a timeline or any measures in place to structurally fix the distribution economics? And do you project that it requires any additional CapEx?

Sam, would you like to add to your list? Or is that the only -- you suggest that you have more questions?

Yes, there are a few related to the cash flow. I can take them combined with.

No, I'll take that from a business operation standpoint.

I mean, listen, warehouse and transport, there are 2 ways to discuss that. There is the ongoing business as usual. We are dealing with that, and this is part of both the reports you have seen of quarter 1 and how we expect for the outlook of the market. There is -- of course, there is progress, but it has to do with the business as usual, nothing to highlight, to be honest with you.

And then, of course, we're dealing with some of the consequences of the context that JC was just describing. All of that is blended on the guidance. So there is nothing structural and to be concerned about when it comes to the actual business operation in North America to highlight in this earnings call.

And to the double click of your question, Samu, there is no specific CapEx required or considered to deal with that.

All right. Got it. Then on the free cash flow, first of all, maybe like thinking that how should we think about the Greater China strategic review's impact on free cash flow? Obviously, you can't comment on investment proceeds, but maybe from a point of view of the restructuring cash costs and from potential working capital release, is there anything relating to those that you would be willing to elaborate further?

And then on the follow up, have you tracked what kind of revenue gross margin improvement levels you would need to get to a structural free cash flow, of course, excluding the effect of Greater China from that?

Thank you, Samu. I'll start with the context of your question, which is the strategic review. And here, as you know, our answer, our messaging is exactly the same as the last quarters.

We continue to evaluate a range of options, including a potential carve out, with the very clear objective to accelerate growth and maximize value. As we work on that, we remain committed to our team, customers and suppliers.

And it's a great opportunity for us, I think, to pay tribute to our great China team, who have remained focused on the business and continue to fight every day as we execute the ongoing strategic review. So a shout out to them at this occasion.

MJ, I think you want to double click on the specifics.

Yes. The only specific, Samu, is on the allocation. We do not allocate any corporate costs to any individual segment. So just keep that in mind as well.

All right. Then perhaps last question, a follow up with previous analysts regarding the guidance. You mentioned some rationale behind the guidance and what you have done there. But what kind of uncertainties would you see around the guidance, given that if the situation continues as planned, does that support your ongoing guidance? Or what would need to happen in order you to go back to the table or revise your guidance assumptions?

Thank you, Samu.

Perhaps let me first repeat, to date, we are not seeing a demand impact from the Middle East conflict. So the question so far, with what we know today, the answer to your question is only on cost and therefore EBITDA.

And when it comes to that, I think, honestly, I cannot predict the unpredictable or be any certain on the uncertainty. I think we flagged to you, like a lot of industries, most of the cost impact is fuel, so oil leading to fuel and then fuel leading to a few categories. These are the areas we are currently and constantly looking at and monitoring. So if there is one space we need to continue to pay attention daily to see what could happen, it is that.

We'll take our last question from Andrew Lazar from Barclays.

You mentioned that so far, you've not seen any impact on demand from the Middle East conflict. Organic sales were up 8% in the first quarter, and you're still looking for 3% to 5% for the full year.

So I'm curious if there is something sort of discrete that you know of that will cause organic sales growth to decelerate from here to get into that 3% to 5% range for the full year? Or you're just being, I guess, prudent and thoughtful in case you see some impact on demand going forward?

Thank you so much, Andrew. And I think you just provided me with 2 great objectives that I will use again. But first, positioning ourselves on guidance is a balancing act. So let me unpack that for you.

On one hand, as you can imagine, our recent quarter's performance definitely gives us confidence in our sales guidance. We just posted Q1. We drove very good growth in Europe and International. We see a return to positive volume and sales growth in North America. All of that are great signs of progress.

It means our growth playbook is working, reinforcing the strategy, and therefore, we really focus ourselves on execution, controlling the controllables. That's on one hand.

On the other hand, there are 3 considerations I want you to have in mind. First, you know better than me, 1 quarter does not make the year. Second, Europe and International sales strongly picked up in the second part of last year, which means we will compare ourselves to a stronger comp base in H2.

And finally, as you said, even if to date we don't see a demand impact from the Middle East conflict, we all know how volatile and dynamic the current environment is and remains.

And therefore, as you very well highlighted in your second option, we choose to be conservative and maintain our current outlook for the moment. And we will, of course, continue to monitor the conditions closely and come back to you.

So I think you used prudent. I totally subscribe to that.

Great. And then one last quick one. You mentioned that EBITDA in Q2 likely below the level that we saw in Q1. This might be getting too prescriptive, but would -- is your expectation that EBITDA could still be positive in Q2? Or based on what you know today, we should be thinking it's potentially even a bit negative year over year?

Andrew, this is MJ. So what we said is that Q2 will be lower than Q1. And what you've just heard is that we are managing current situation with all levers that we have. I'm not going to say more than that. We are definitely confirming our guidance. So I think with those 3 topics, you can take it.

That does reach our allotted time for Q&A. I'll now turn the call back over to our presenters for any final or closing remarks.

Thank you very much.

Thank you, everyone. Thank you for joining, and have a great day. Have a good day.

Thank you very much.

Thank you. That brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning, and welcome to the Oatly Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. This event is being recorded. I would now like to turn the conference over to Brian Kearney, Vice President, Investor Relations. Please go ahead.

Good morning, and thanks for joining us today. On today's call are our Chief Executive Officer, Jean-Christophe Flatin; our Global President and Chief Operating Officer, Daniel Ordonez; and our Chief Financial Officer, Marie-Jose David.

Please review the cautionary statement regarding forward-looking statements and other disclaimers on Slide 3, which are integrated into this presentation and includes the Q&A that follows. Please refer to the documents we have filed with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also, on today's call, management will refer to certain non-IFRS financial measures, including adjusted EBITDA, constant currency revenue and free cash flow. Please refer to today's release for a reconciliation of non-IFRS financial measures to the most comparable measures compared in accordance with IFRS.

In addition, Oatly has posted a supplemental presentation on its website for reference. I'd now like to turn the call over to Jean-Christophe.

Thank you, Brian, and good morning, everyone. I want to begin today's discussion with Slide 4 by emphasizing how grateful and proud I am of the entire Oatly team for delivering our first full year of profitable both. We have achieved a major milestone of transforming Oatly from structurally unprofitable with slowing growth to a company that is now structurally profitable with accelerating goals. So thank you from the bottom of my heart to all the Oatly employees for making this happen and for continuing to nourish and grow our brand while staying true to our mission. This is truly a significant milestone.

Moving to Slide 5, which has the key messages I want you to take away. First, for the first time since our IPO and for the first time in 7 years, we drove profitable goals for the full year with solid constant currency revenue growth and positive adjusted EBITDA. I'm also proud of how we have delivered these results. We continue to drive efficiencies throughout the organization, while simultaneously reinvesting behind our refreshed growth playbook. And we are seeing clear signs that our playbook is working and having a real impact in every market where we have fully deployed it. We are truly embedded a culture that is focused on the impact of our investments.

As we look forward, we expect to accelerate this impact as we continue to execute our growth strategy and drive incremental demand. In results, we are driving with our refreshed growth playbook proposed with the visibility we have to additional growth drivers give us the confidence to expect even stronger profitable growth than what we know in 2025. We continue to see significant potential ahead of us, and we are confident that we are taking the right steps to turn that potential into tangible results. Turning to Slide 6. Here, you can see the improvements in three of our most important KPIs. Since beginning our turnaround in 2022, we have grown revenue 19%, improved adjusted EBITDA by $275 million and improved free cash flow by $436 million.

And in 2025, we drove solid top line growth and positive adjusted EBITDA, which officially enter us into our profitable growth era. While we are turning the page from 1 chapter to the next, our story does not fundamentally change. We remain focused on driving growth and impact in a disciplined and profitable way. Part of that disciplined building will be continued focus on improving our free cash flow, which have significantly improved each year but is not yet where we want it to be. Our business plan remains fully funded and bringing the company to structurally positive free cash flow is important to us. And we fully intend to drive the business to that milestone, not just from improvement in the P&L, but from pulling on all available levers, including working capital.

Slide 7 goes one level deeper on our transformation. Here, you can see that the underlying health of our business has continued to improve as we have driven toward profitability. In 2025, we sold more volume than ever before and 18% more than in 2022. At the same time, we continue to improve our gross margin to over 32%, which is 2,100 basis points higher than 2022. And on Slide 8, you can see the results on the cultural obsession with driving efficiencies to provide fuel for growth-driving investments. Since Daniel [indiscernible] joined the company, we have reduced our cost of goods sold per liter by 23%, reflecting the significant restructuring of our supply chain, including the strategic partnership in North America that led to a consolidation of co-packers the closure of our Singapore facility and the creation of a

culture obsessed with efficiency and continuous improvement. We have also reduced our total SG&A by nearly 100 million or 21% of revenue, while continuing to invest to support our brand. We have taken a portion of these savings and redeployed them in a very disciplined and deliberate manner by ensuring that our investments are all rooted in our refreshed growth playbook that Daniel will describe.

So let me give you just some examples in the next few slides. We have invested in new on-time products that are extremely relevant to today's consumer. We have launched new flavors such as the flavored Barista products. We have launched new product varieties, such as Mace. And we have launched new products for specific customer needs such as the baristamatic that is formulated specifically for automatic coffee machines. We invested in our look books and future of taste [indiscernible], both of which actively inspire customers and consumers to think about use and consume only while also solidifying us as the Global Taste authority. We invested in events that introduce our products to new customers and consumers while also being a cultural experience that people share on their personal social media platforms. And we invested in [indiscernible] in-store executions to ensure that consumers makes us part of their daily lives. As you can see, our journey to profitable growth has not just been a cost-cutting exercise.

We have been shaping and building this business to sustainably drive profitable growth far into the future. Slide 15 shows our focus areas for 2026. As Daniel outlined, we are seeing very positive traction on our refresh growth strategy, and we will be tumbling down on its execution. We will, of course, maintain our culture of efficiency, continuous improvement and impact. This cultural obsession continuously generates fuel for growth-driving investments and the employees of investments in a very disciplined manner.

And finally, while we do not have a detailed update for you today, in 2026, we plan on completing the strategic review of the Greater China segment. We continue to evaluate a range of options, including a potential carve-out with the goal of accelerating growth and maximizing the value of the business. We will update the market on our progress as necessary. Slide 16 shows our guidance. In 2026, we expect the continued rollout of our refresh growth playbook to drive an acceleration in our profitable growth. Specifically, we expect to drive constant currency revenue growth of 3% to 5% and adjusted EBITDA of $25 million to $35 million. With that, dear Daniel, over to you.

Thank you, [ JC ], and good morning, everybody. Today, I will outline how our growth playbook is working and what to expect as we move forward. Slide 18 shows the three pillars of the playbook that we have been executing against increased relevance, attack barriers to conversion and increase availability to consumers.

Slide 19 summarizes our focus over the past 2 years. We have methodically deployed this playbook, staying true to our unique strength but radically transforming the way in which we look at the category and the way in which we deploy our brand. As part of our cultural session with efficiency, focus and impact that JC was referring to, we made the strategic choice to fully leverage our iconic brands, our outstanding core product and our unique Barista market developers team by focusing them on the areas of highest impact. So staying true to what makes oddly, this playbook change is founded on the strategic choice to be relevant to a much broader population, a decision not just to aim at growing consumption within our historical consumer base, the lactose intolerance and the environmentally conscious but also to expand our target market to the upcoming younger generations to drive true incremental consumption growth.

That means we're focusing on our strength within beverages, as opposed to trying to mimic [indiscernible] in all its phone from cheese to yogurt, ice cream and on and on, an alternative to dairy no more, but an experienced canvas for the beverages market. By simplifying our focus on beverages, we have been able to simultaneously broaden our attention from primarily coffee to the much larger and faster-growing beverage space. from coffee to matcha to cold forms to [indiscernible] and beyond. We are working with customers to renovate their menus and expand their shelves to be more relevant, more provocative and more on trend with today's consumers. As we help customers become more relevant, we are gaining more space and visibility on menus and on shelves.

To attract these consumers, we knew we had to evolve alongside them. And while sustainability will always remain the core of the Oatly mission, we know that the biggest sustainability impact we can have is through growing and converting more people. We also know that taste is a top driver for adoption. Therefore, as we say internally, we live with taste and reaching with mission. We have also adapted how we communicate Gen Z and Alpha are digitally native and we have migrated from analog heavy individual advertising to a more relevant integrated and digital-first approach.

And ultimately, the proof is in the results. It's a clear size that this strategy is working, and we have moved from slowing growth to accelerating growth, not only Oatly being the driving force of oat milk and plant-based milk in that order, what I'm particularly excited to see household penetration on the right for the first time in years. Slide 20 shows that our strategy has driven broad-based global growth in 2025. In the Europe and International segment, we saw a solid 7% growth in our established markets and fantastic 54% growth in our expansion markets. North America has also driven solid 7% growth in both retail and foodservice when excluding the largest food service customer.

Greater China has grown 5% in its key food service channel and its entry into the retail cloud channel more than doubled the retail business in the segment at the back of a more decisive [indiscernible] into [ clubs ] with the right high fiber portfolio. When we look at the underlying growth on Slide 21, we see accelerating growth, which gives us additional confidence that the strategy is working. Europe and international constant currency revenue growth accelerated throughout the year and reached 14% in the fourth quarter. Similarly, excluding a large food service customer, North America revenue growth accelerated to 10% in the fourth quarter.

On Slide 22 shows that we consistently outperformed our competition in the track channel data. During the second half of this year, we expanded our retail market share in every single European market that we measure, whether it is an established or an expansion market. Unlike in Sweden, Switzerland, Norway and Austria, we have recently became the #1 plant-based drink brand in Germany which is an amazing feat given that Oatly is a single crop competing among multi-crop brands. And in the U.S., as we start to lap last year's portfolio delis things, our drinks portfolio returned to growth in the fourth quarter at the back of sustained strong velocities and distribution gains in the core portfolio. Importantly, our growth is being fueled by new consumers entering the category.

On Slide 23, you can see that most of our major markets have increased household penetration in the past year. As we dig into the data, we see that consumers are coming into the category tend to be younger gently, which we find very encouraging. Now that we have discussed the past, I want to give you a preview of our future plans. Put simply, we are doubling down on our growth playbook. Since its initial rollout, we have found that it works in every market where it is fully executed. So we intend to continue executing on the 3 pillars: Increased relevance, attack barriers to conversion and increase availability to consumers and our upcoming innovation countries clearly demonstrate them.

Slide 25 shows how we're going to further expand of Arista lineup in 2026. Our iconic Barista product remains our top-selling item and the Flavor of Barista such as the caramel, vanilla and popcorn flavors have been a hit with consumers. In 2026, we will be launching additional flavors such as Toros and coconut. This will enable customers to create an even wider range of drinks with on-trend flavors. I am particularly excited to announce the launch of our cold Home Barista that can be added on top of any beverage hot or cold as plant-based cold form options aren't available in the market yet. This is a breakthrough product that will elevate the experience for our food service customers and with delight consumers.

We will also be capitalizing on the success of our new Matcha line up. Half of our matcha drinks have added flavors. So we're making easier and more convenient for both customers and consumers by launching Matcha products in retail with the flavors they have proven to like the most in food service. And unless you have been ignoring all social media for the past year, you will know that consumer awareness of the importance of fiber has been rapidly increasing. Consumers are fiber maxing to boost gut health increased satiety and lose weight. As a company that is rooted in science, only has historically advocated for the benefits of cyber and people's diets. In fact, many global health authorities estimate that people in the Western world have a fiber deficiency of 10 grams per day. So we will be decisively leveraging our fiber credentials by campaigning about the fiber content of our products.

But this is just the first step, and you should expect to see more from us on this topic in the future. As you can see, these new product launches are incredibly relevant to today's consumers. They directly attack barriers to conversion to on-trend flavors and convenience and we have concrete plans to increase their availability to consumers around the world. With that, I will now turn the call over to Marie-Jose. MJ, please?

Thank you, Daniel. Good morning, everyone. Slide 29 shows the quarterly and full year P&L. This quarter, we grew revenue 9.1% and 4.3% on a constant currency basis. Gross margin was 34.5%, which is an increase of 580 basis points compared to last year's Q4. Adjusted EBITDA was positive 11 million in the quarter, which is 70.4 million higher than last year's Q4. For the full year, I am proud to report that we have driven our first full year of profitable growth. We grew revenue 4.7% or 2.2% on a constant currency basis. And adjusted EBITDA was 6.8 million.

Slide 30 shows the breaking items of our revenue growth. In the quarter, volume grew 2.9% and Price/mix increased by 1.4%. Foreign exchange was a 4.8% tailwind. Slide 11 shows our year-over-year gross margin range. The benefit of absorption and supply chain efficiencies improved margin by 400 basis points. This reflects the positive impact of the closure of our Singapore manufacturing facility at December as well as volume absorption and productivity. Pricing and product mix added 200 basis points to gross margin in the quarter, mainly driven by our strategic mix management in Europe and international and customer mix in North America. We experienced a 30 basis point headwind from inflation. Finally, the impact of foreign exchange movements will withstand the response headwind.

Slide 22 show the Q4 year-over-year improvement in our adjusted EBITDA. The 17.1 million improvement was driven by 90.1 million increase in gross profit partially offset by million increase in SG&A and over. In SG&A, our ongoing cost savings actions in areas such as indirect proforma were more than offset by a 7 million headwind from FX. Slide 23 shows some level detail. In the quarter, each segment outperformed our top line expectations. Importantly, the outperformance was driven by volume, which highlights that our growth label is working and driving incremental consumer demand. European international grew volume by 13.9%, which helped drive a 9.9 million increase in the fragment adjusted EBITDA.

North America had 8.8% revenue decline was driven mainly by the change in sourcing strategy at a large customer. As Daniel mentioned, excluding this large customer, the segment grew 10% in the quarter. The segment adjusted EBITDA increased to 4.4 million, which was the second highest ever quarterly profit. [indiscernible] China constant currency revenue declined slightly. Recall that last quarter, we said that certain customers' orders shift from Q4 to Q3, which impacted the growth rates in the quarters. The same month reported 1.2 million in adjusted EBITDA.

Corporate segment improved 3.5 million, and we continue to rightsize our cost structure. Turning to our cash flow on Slide 34. For the full year, free cash flow was a net outflow of 39 billion, which is 17 million better than last year. I continue to see good progress throughout the company on all levels of cash flow and believe we still have room for improvement. As JP mentioned, our business plan remains fully funded and we are very focused on bringing the company to structurally positive free cash flow. While we do not expect to deliver positive free cash flow for the full year we do expect to improve from 2025 level.

In 2026, is the biggest driver of our free cash flow improvement are expected to come from our higher adjusted EBITDA and we working capital improvement. We will continue to [indiscernible] in our investment process. During the fourth quarter, we closed our refinancing activity that we announced in September. While there is not material impact for free cash flow. We continue to expect approximately 5 million of noncash infest expense savings that we discussed last quarter with the savings being mainly driven by a reduction in our outstanding convertible notes. Turning to our post outlook on Slide 35. We expect constant currency growth in the range of 3% to 5%. This growth includes an approximately 200 basis point headwind from a large customer in North America.

Despite this headwind, we expect the North America segment to both sell in 2026. Based on recent FX rates, I'm assuming no change for the rest of the year. we estimate FX to add approximately 100 to 200 basis points to full year net [indiscernible]. For adjusted EBITDA, we expect to be in the range of 25 million to 35 million. The year-on-year improvement is expected to mainly come from gross profit improvement, driven by sales growth, outsourced benefits as well as efficiencies in the topic. We expect to report the continued rollout of our post table with strong brand building investment. Especially in the first half of the year. Our guidance continues to assume no direct impact on our services. We also assume that the current economic conditions and consumer behavior will remain largely consistent for the year.

We expect CapEx to be in the range of 20 million to 30 million for the full year. This is higher than 2025, driven by two factors. First, some projects that were originally planned for 2025 have moved to 2-26. And second, we had on increasing capacity in our European International segment to support and enable its continued growth. We are being very disciplined with this capacity expansion and we expect it to generate a higher return on investment. Finally, on an administrative note, due to our recent entrance of Nordic bonds.

Going forward, we will start seeing an aggregated quarterly report for the fourth quarter in addition to our annual 20. This concludes our prepared remarks. Operator, we are now prepared to take questions.

[Operator Instructions]. The first question comes from John Baumgartner with Mizuho.

I'm wondering if you could speak to North America Foodservice. The expectation is there for 2026. I mean there's a partial year overhang from the large customer drag at the outset. But can you talk a little bit about the progress you're seeing in outlets aside from that customer? And how do you think about bringing the flavored varieties to the U.S. and landing new store doors within the broader growth of the coffee shop sector?

Daniel here. Good to hear you. Do you have a second question, John? Or it's only that one?

My follow-up was more on the innovation side as well.

Good, good. Good to hear you. Listen, our story is very consistent on this front on foodservice partnerships in general for the -- for the last 3 years, we have been diversifying the customer base. We added a significant amount of new customers in the channel and with visible success. As you saw the double-digit growth in the last quarter, which has been sustained for a few quarters now. These -- the segment outside this large customer now represents 30% of the total segment and with very, very good accretive mix. So these customers, which we expect to continue to grow strongly, they believe in the Oatly playbook and are committed to growing the category profitably.

So this is, as you heard us saying before, this is our controllable. And moving forward, we will decisively take them more and more of them on board. So I'm giving you more of the precise outlook there. We expect to continue to follow this growth pattern moving forward. As far as the specific customer that you referred to, it's now below 10% of this segment's revenue in the quarter. And you know John very well where we come from when JCI took over the business 3 years ago, right? So from a much, much larger number. And you heard Jay talking about what to factor in, in the model when it comes to the headwind as we move forward.

So we focus on the controllables, and that's it. From -- what we are seeing, and I know you are in tune with what's happening in Europe from an NPV standpoint, we see food service in North America is coffee and food service, I would say, because they are segments within the same space, which we internally call out of home, it's being. We see a very similar dynamic as you see when you walk into any of them like we see in Europe is being and growing very, very consistently.

So the type of signature drinks you see in Europe, and you could see the look book, you start to see them more and more in the U.S. And I would draw your attention to the latest call out. If you want to spend a few minutes in Instagram, you can go for kids of immigrants and you see the type of stuff that the brand is doing coating with a barista community and the food service community that really, really are committed to driving us forward. And therefore, there is very, very stock similarity between the signature rates you see in Europe, the signature drinks you see in foodservice in the U.S. and the kind of momentum we are driving. When it comes to specific innovations, you would have seen that we have not made a distinction between European innovation and North America's innovation.

And that's the decision following the consumers we have addressed in the last earnings call, the similarities we see in the Oatly space, in the coffee space and beverage space. And therefore, everything we're talking here from Varistamatic to confine plant-based called Foam, you will eventually see that in your home market very soon. So that's the destination, John.

Great. And then to follow up on the innovation front, it looks as though you're really enhancing the focus on fiber, which I guess, naturally ties in with your own ingredients there. But I'm curious, one of your largest competitors in the U.S. has recently launched a high-protein fortified plant-based beverage. And yes, just sort of think about the functionality of the category, how are you thinking about enhancing protein content, especially as you see more of the food service operators leading towards protein-oriented innovation.

Very good, John. And again, consistent with what we talked about, we stayed true to to who we are. Remember, when 2 years ago, we started to pick up the noise and misinformation in the category, and we really stay tuned towards science says and what we stand for in the end. And what fines says is that the Western worst population has a fiber deficit of approximately 10 grams per day. And at the same time, there is a protein surplus. So you see there is that we follow what everybody else is doing or we follow not just our instances, but who we are.

And as you saw in our prepared remarks, we didn't see a very, very significant trend, fiber maxing trends based on gut health, both in the U.S., North America and in Europe. So that's what we will have as focused doing. And note glass-full closes the gap, the fiber gap by 20% and 1 only glass of out. So what we are convinced about is that the world needs more boats and on the power port. So we're very, very excited to see fibers and gut health racing in popularity, especially with Gen Z, and we will be very active on this space, not only advocating and campaigning for it. But as you are pointing out, focusing on delivering an enhanced portfolio in this space.

The next question comes from Max Gumport with BNP Paribas.

Thanks for the question. It's great to see the continued outperformance of Oatly in the U.S. retail. But clearly, the Oatmilk category remains under pressure in U.S. retail. So I was hoping to get more color on what you believe is driving the continued milk category declines? And then also, what's embedded in your 2026 outlook for the old milk category in U.S. retail.

Thank you, Max, Daniel, again. Good to hear from you. Yes, true, if you look at the hard data at the moment, in North America, category softness and I would like to underline in traditional retail in traditional retail continues. So to add color, how do we see this mark we see strong signs that the actions we have taken are yielding visible results and not just our results but category results. The Reshape portfolio, you see what you remember where we come from. Playing in 3 or 4 different categories. Now is 95% drinks, approximately 95% drinks is yielding the results you see in the last quarter, number one.

Number two, as I replied to John before, the coffee and food service playbook is in full motion in the U.S. and is growing consistently at double digit. Thirdly, we made big steps in clubs that continue to move from strength to strength and as an extra bonus, we have opened Canada as a greenfield on top. So these are the things -- these are the measures that we have taken to drive the category forward. These actions underpin the underlying performance that you've seen in the segment, the highest sales on record in both channels with 10% underlying growth in the quarter. And going specifically into retail, you see how we are outperforming the market and competitors with the highest ever shares in both categories, post-meal and plant based in the last 4 weeks period.

So of course, all of us, you and us included, were asking ourselves a question, okay, that's good. Therefore, your strategy is one of share taking. Of course, not. We know that we believe that we know when Oatly grows, so is the category. And we start seeing the first results on penetration, Max. We're growing penetration. Again, this is something that JC and I have not seen in the U.S. since we are building the business. So this is not being fit and moving decimals of penetration is not an easy feat. So we're indeed converting consumers and the momentum is building in the U.S., too. So what's coming, two very important points. What's coming? So we turn these early results into strong category growth, which is the top of our controllables leased in the U.S.

First, in line with our selective investment choices and having reached the profitable growth milestone as a company that both JC and MJ referred to, you should expect us to progressively see this year more visible brand investments behind demand generation, as you have seen in Europe in a sustained manner. I was mentioning before the kit of in immigrant workwear for the Barista community, which is really, really breaking more records at the moment in social and within the Barista community. So that's number one, investment behind the brand investment behind the map. Second, the big missing piece here, Mark is to see in the U.S. traditional trade the kind of portfolio you can see in Europe, where we can turn all this being growth in food service and out-of-home and coffee into the retail space. And the teams were ready to deploy, by the way, all these products you see are ready to deploy and some of them are very close to be deployed.

The teams are head down on the case. But here is the point that you know very well. The U.S. market is very large and it's more complex. So the trends we observe in out-of-home or export in a couple of weeks, take time to appear on shelf. The most notable difference being the timing of shelf of retail resets typically once a year with very strong and narrow windows. So expected to get progress but only step by step. So to your point, as you can hear, we're very pleased that we see signs that we're moving in the right direction. And if I can talk for two segments about Europe as well, we will maintain the core to sustain momentum in Europe and fully turned the corner in North America. We can get these two things: investment behind the brand and demand and the retail space transformation as we move forward. That we believe will make our algorithm totally worked.

Great. And then as a follow-up on free cash flow. So it's clear you've made sizable progress again in '25 on free cash flow, and you expect continued progress in '16, although it sounds like you still expect free cash flow to be negative. You noted your plans are fully funded. I'm wondering what do those fully funded plans embed for when free cash flow turns positive?

Sure. Max, this is MJ. Look, thank you first for recognizing all the progress, and it's absolutely true, and we've been consistent repeating that our business plan is fully funded and cash is important, not only to me, but you've heard me as well saying that the culture within the company has changed significantly. So how are we looking at that moving into 2026. First, clearly, you've heard all the things we are doing in order to drive the growth. So the combination of driving the top line, continuing to be offset by driving efficiencies as well as the progress that we've been doing on working capital with strong discipline on CapEx, comment, this is a combo that give us the full confidence that this business will be free cash flow positive.

Now lastly, it's a matter of time because we know and we see the building blocks in place. So clearly, if you allow me to say that, we will continue to give you an update as we go with in 2026. But first now, we are not giving more than what we just said.

The next question comes from Kaumil Gajrawala with Jefferies.

I guess a couple of questions -- well, first of all, congratulations, it's like the win and quite the effort. A couple of things to maybe talk about the increasing household penetration, particularly in Europe, is that -- can you maybe talk about that customer? You mentioned that they're a bit younger, but is it the innovations that are bringing new customers in? Is it just general branding of the category and your brand itself? What maybe is driving the sort of -- it seems like an inflection in household penetration.

And then shifting to the U.S., I'm sure you've seen there were new dietary guidelines for -- and part of that, and I guess on social media and such is there's this big whole milk craze that's starting to take off for whatever reason. I'm curious if you know how you're thinking about that, if that has any impact on your business or maybe even the view of the category in general.

Thank you, Kaumil. Daniel. I will start here and possibly Jesse will take the second part. Listen, thank you for picking up on penetration and I know very well, you understand how complex are not easy to get penetration back to growth. By the way, I would like to underline that both in the U.S. but especially in Europe, is the only brand that is driving and growing penetration, which tells you a lot about the playbook. So the answer to your question is pretty straightforward.

It is the new growth playbook, commit. The inflection point that you called out very well, and we could have quoted a number of other markets as well, especially the new markets, which are also driving Oatly Oatmilk and plant-based category penetration in that order comes from the new playbook precisely from the new portfolio. So it is related. I prefer to talk about portfolio [indiscernible] innovation because innovation it feels like it could be random, but it's the point about making sure that consumers can have at home, the same type of signature drinks that are drinking when in coffee and food service. Be it at the matcha, be it the popcorn, all of those are driving new penetration. So -- and the numbers we have, the data points about the demographics are pretty impressive.

So it really follows the exact same words that I used in my prepared remarks. Which is Gen Z and Alpha. So really, really young consumers coming into the category as a cross-check with the new portfolio. So there is something on the pay strategy for sure. So it's mostly about that, Kaumil.

Thank you, Kaumil. JC, taking over. First of all, thank you so much for your words of recognition for the journey. I mean the loss. It has been quite a journey. So happy to hear. I'm taking your two points, cow's milk. What we see is cows milk in volume continues to decline. And it's a decline that part years ago. There is one very specific segment within cow's milk that is uptick, which is the one we to protein and reached cow's milk is the only one that is seeing an uptick. The rest is going down. So just to clarify the way we look at that.

Now when it comes to the new U.S. dietary guidelines. I look at it with mixed links to be honest. The first, on 1 hand, I'm heartened and I see very positively the normalization of non-dairy milk in the whole milk for Healthy Kings Act, meaning that no children in more schools around the U.S. will have an easier access to nutrition sustainable nondairy options on their lunch price. I think that's great. But on the other hand, when I look at the DPA heavy push for direct to include more whole cow milk, animal proteins and animal-based fats.

I find it both concerning an amidst opportunity. concerning because the leading card geologists have warned that encouraging an increase in meat and full fat while neglecting fiber goes against clinical advice ignored decade of clinical evidence and risk increasing evidence and incidence of hard disease for Americans, which already is the leading cause of death in America. And when it comes to the planet terms perspective, we know that [indiscernible] alone represent half of all climate emissions produced by our food system. So where does that bring me? I still believe that dietary guidelines are a great starting point for national public health policy and they can make an enormous difference in improving the well-being of citizens farmers on the planet. And when I look at the positive example, I took to look at Denmark, the first country in the world to create a government-led action plan to shift it towards more sustainable sources of protein and other nutrients, including fiber and healthy fats, which is for me, the best existing example out there.

the next question comes from Sam Wilhelmsen with Nordea Markets.

I could continue a bit on the free cash flow that Max highlights. What is the underlying reason that we haven't seen improvement in free cash flow during the past 2 quarters? And is the thing that's going to change in 2016 given that you are now also guiding higher CapEx in 2016 compared to '25. And you still seem confident that the free cash flow will be positive in 2016.

So your question is about the free cash flow comparison Q3 versus Q4. Is that correct?

No, it's perhaps that we haven't seen improvement from like sequentially the free cash flow when I looked. It hasn't been improved since Q2 and now you're expecting it to change in 2016, seeking for a cash flow improvement ratio that you can see that the free cash flow is going to be positive in 25 million. So what is the underlying reason why we haven't seen that yet, and we'll see it in '26.

Yes. The variance is definitely coming from -- so the short term the first, as you noted, we do have some phasing in our different components, ever CapEx, either tax, either is interest, that's point number one. Point number two, the biggest driver ads coming from how the network in is evolving between quarters. So still explaining the fact that between 2025 again in a well between Q4 and Q4. So that's one explanation.

Now going into 2026. What do we expect? We do expect EBITDA, so the free cash flow to increase and to be to continue to improve, as I just explained to map, which is really about how we are going to accelerate to our stores, how we are managing our CapEx and you've heard in the prepared remarks that we have some phasing here in regard on CapEx and how we are managing net working capital, which is our -- honestly, one d of our biggest levers that we still have to unleash and really leverage as we go through the year. So I hope I answered your question, but maybe you have a [indiscernible].

Yes. I think that's a good answer to that question. But just shortly on the CapEx also just minor detail, but given that you mentioned a capacity increase for '26 in terms of CapEx, are you ability disclose that what was the capacity utilization of your existing facilities at the end of the year?

Thank you so much. So as you can see, we -- from a toll-based standpoint, we have everything we need, and we are very confident that we can fulfill the foreseeable growth with the old based capacity we have. because of the accelerated growth in Europe and International, which is obviously a great challenge to have, we will be adding a few filling capacity, and this is what's included in our CapEx guidance.

Okay. Got it. And one last question from my side. It's regarding your equity position given that you currently have million equity in your balance sheet. Is this a risk that you are currently assessing given the near-term earnings development? And how we should think of your equity position to develop going forward?

So clearly, I think I said it already, we are always looking at our opportunities when it comes to how to manage the balance sheet and the value creation from the balance sheet. So I honestly don't have a lot to say today. But yes, we are looking at everything.

This concludes our question-and-answer session. I would like to turn the conference back over to Brian Kearney, for any closing remarks.

Great. Thank you. Thank you, everybody, for joining us today. If you have any follow-up questions, please feel free to reach out to me, and we can set something up. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Oatly's Third Quarter 2025 Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Brian Kearney. Please go ahead.

Good morning. Thanks for joining us today. On today's call are our Chief Executive Officer, Jean-Christophe Flatin; our Global President and Chief Operating Officer, Daniel Ordonez; and our Chief Financial Officer, Marie-Jose David.

Please review the cautionary statement regarding forward-looking statements and other disclaimers on Slide 3, which are integrated into this presentation and includes the Q&A that follows. Please also refer to the documents we have filed with the SEC for a detailed discussion of the risks that could cause the actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also on today's call, management will refer to certain non-IFRS financial measures, including adjusted EBITDA, constant currency revenue, and free cash flow. Please refer to today's release for a reconciliation of non-IFRS financial measures to the most comparable measures prepared in accordance with IFRS.

In addition, Oatly has posted a supplemental presentation on its website for reference.

I'd now like to turn the call over to Jean-Christophe.

Thank you, Brian, and good morning, everyone.

Slide 4 has the key messages I want you to take away. First, I am proud to report that for the first time since our IPO, we drove profitable growth in the quarter with solid constant currency revenue growth and positive adjusted EBITDA.

Second, we are seeing clear signs that our refreshed growth playbook is working, and we are driving positive category momentum in every market where we have fully deployed it. And finally, we are reaffirming our 2025 guidance.

Turning to Slide 5. This quarter marks an important milestone for Oatly as we achieved our first quarter of profitable growth. Achieving profitability reflects the disciplined strategic actions we have taken over the past 3 years to strengthen the foundation of our business. Since Daniel and I joined the company in mid-2022, our sales have increased by over 20% and both our COGS per liter and total SG&A each have been reduced by over 25%.

These results are the outcome of a company-wide effort to operate smarter, serve customers better, and position the company for sustained success as we execute our company's mission. A turnaround like this is not the making of just a few people. It has taken everyone throughout the company to deliver these results. And I therefore want to thank our entire team for their trust, dedication, and effort. To be clear, profitability is not our finish line. It's a marker of progress, a crucial credibility milestone, and even more important, a ramp-up for future profitable growth.

On my first earnings call as this company's CEO, I spoke to the importance of balancing performance and purpose. I believe achieving profitable growth is validation that we can achieve our dual mandate of driving both purpose and performance. We see further potential ahead, and we are confident that the steps we have taken have set us on a path for durable, scalable, and profitable growth. This quarter's performance is a proof point of what this team can accomplish, and this is only the beginning of what's possible.

Turning to Slide 6. Here, you can see the results of the deliberate and disciplined execution of our refreshed growth playbook. Put simply, our refreshed growth playbook is working. Our European and International segments started to roll out this playbook last year, and it grew revenue by over 12% in the third quarter. And the North American segment has started to see early progress, especially in the foodservice channel, which is where execution of these playbooks begins. Daniel will go deeper on the topic, but we are pleased with the progress we are seeing so far, and we are doubling down on the execution of our strategy.

On Slide 7, we are reaffirming our 2025 guidance, and we remain on track to deliver our first full year of profitable growth. We continue to expect constant currency revenue growth of approximately flat to 1%, adjusted EBITDA in the range of $5 million to $15 million and CapEx of approximately $20 million. We will continue to deploy our playbook while maintaining strong cost discipline. We believe this is a winning recipe for our company, and we believe we remain on the right path.

Finally, Slide 8, gives an update on our Greater China segment and the ongoing strategic review. Our Greater China business and our Greater China team continue to perform well, and it drove strong profitable growth in the quarter. The strategic review is ongoing, and we continue to evaluate a range of options, including a potential carve-out with the goal of accelerating growth and maximizing the value of this business. We continue to believe in the future potential of this business. As we mentioned last quarter, we continue to operate in the region, including our Ma'anshan facility, and we remain committed to our customers, our consumers, and our employees while maintaining the safety and continuity of our operations. We will update the market on our progress as is necessary and appropriate. Daniel, over to you.

Thank you, JC. Good morning, everyone.

Slide 10 shows how the Europe and International segment has performed. Revenue grew 12% in the quarter, driven by strong 8% volume growth. This growth is a direct result of the rollout of the refreshed growth playbook. As we're driving the top line, we're also expanding margins. The segment delivered another quarter of strong profitability with an EBITDA margin of 18%, which is 700 basis points higher than last year's third quarter. I am enormously thankful to this team who are really hitting its stride. As we move forward, we expect this segment to drive profit growth primarily through generating incremental consumer demand as we continue to execute against our growth playbook.

Slide 11 shows why we believe we are on the right track with our new growth strategy. Recall that the pillars of our playbook are to drive relevance, to attack barriers to conversion, and to increase availability. To do so, we're partnering with our customers to make their menus and shelves much more relevant for the taste and flavor obsessed Gen Z generation.

We start with our iconic Barista market developers to renovate foodservice menus to be ahead of the trend curve with drinks that use Oatly as a default experience canvas, not just as cow's milk substitute any longer. As these drinks generate vast awareness, consumer engagement and trial, our growth naturally shows up first in the foodservice channel with retail following. Here you can see that exact dynamic occurring in our E&I segment. Foodservice growth started to accelerate as we rolled out the playbook late last year, driving 28% year-on-year growth in quarter 3. The retail business has started to accelerate, moving from 4% growth in the last few quarters to 11% growth in quarter 3.

On Slide 12, you see this dynamic playing out in a specific market. The takeaway of this slide is that Germany is our success story and an example of how this strategy can and will drive repeatable, consistent results. We rolled out this strategy in Germany late last year with relevant messaging that directly attacks the primary barrier to conversion, taste. We then launched the Lookbook to inspire foodservice customers to renovate their menus with much more interesting and Gen Z-friendly offerings. These actions have driven foodservice growth over 45% for 5 straight quarters.

As consumers engage with our products in the foodservice channel, they naturally look for our products in retail. So that outstanding foodservice growth has led to strong growth in retail, accelerating over 14% year-on-year growth in the last 12 weeks. This strong performance has driven 70 basis points increase in our retail market share of the plant-based milk market and 280 basis points increase in the oat-milk market when compared to full year 2024.

And it's not just Germany, Slide 13 shows that we are seeing similar trends across our largest European markets like U.K. and Sweden. Retail sales growth in these markets was about 4% in the last 12 weeks and have accelerated those growth rates in the last 4 weeks. In the U.K., we have gained 70 basis points of plant-based market share since 2024. And in Sweden, we have gained 40 basis points. In a nutshell, we see that our experience and taste-driven strategy hits the bull's eye of what young and not so young generations are expecting. Oatly is creating relevance and generating category demand again.

We see this strategy working not only in the big established markets, but also in our expansion markets, where we grew nearly 50% year-on-year in quarter 3 as we continue to create the category. When Oatly enters a new market, we consistently see that it goes all oats.

We believe these markets have a long runway for growth, and we're excited to continue bringing the Oatly magic to more people in more places around the world. We are convinced that making our customer menus and shelves more relevant by sharing the future trends from around the world is no doubt the way to continue to drive excitement and create the next wave of all drinks category momentum. While each market will have its unique execution and timeline, we're confident that there is still more runway for expansion everywhere. That is why we're taking this strategy to the next stage.

Slide 15 shows the latest steps in capitalizing on the Gen Z-driven flavor bonanza that is going on across the globe. We have seen an explosion in popularity in Matcha-based drinks. And so we fast track the launch of the Oatly take on Matcha, an incredible product at the center of taste and flavor paradigm, tailor-made for Gen Z to shake, open, and pour.

We then execute our unique foodservice-led and experience-based model. As always, we are at our best when we drive culturally relevant experiences like in music festivals, engaging with content creators or meeting with customers. The engagement has been exceptional. Then to enable consumers to enjoy our products at home, we executed the third pillar of our playbook, which is to increase availability.

On Slide 16, you can see several of our in-store executions. These products, not only Matcha, but the top conversion we presented last quarter have been performing very well and are driving truly incremental volume by bringing new young consumers into the category and expanding the consumption of the existing consumer base.

Across Europe, we're seeing examples of these new products quickly becoming the fastest turning in the category and with excellent repeat rates. Importantly, these new products are accretive to our sales mix and gross margin, which is very encouraging indeed as a business model. But we're not stopping there.

Slide 17 shows what we're working on. We recently launched our first Future of Taste report, where we interviewed hundreds of baristas and drinks experts from all around the world to identify the key trends that we expect to drive menus going forward. Again, we do not just follow trends, but true to our DNA, we aim at creating them. I encourage you all to read it. But if you don't have the time, you should know that we have used those insights to inform our latest Lookbook, which we recently launched in Berlin at the global event where we invited customers, media, and opinion leaders from around the world.

Our prior Lookbook was a big success and helped us drive incremental demands with provocative drinks and unexpected recipes that totally changed the way in which consumers view oat milk. It is no longer just an alternative to cow's dairy, but an exciting canvas to experience drink in the broader and more exciting beverage space that is way bigger than only coffee.

Turn to North America on Slide 18. We continue to face the discrete headwinds that we have discussed in the past, including a large customer sourcing change and the frozen SKU rationalization. Importantly, though, we made underlying progress. Excluding the impacts of those headwinds, the segment has grown revenue by 5% in the quarter and by 4% year-to-date. We believe these growth rates are a better representation of how the underlying business is actually performing.

We have clearly reduced our dependence on our largest foodservice customer as they represented just 10% of the segment's revenue in the quarter compared to nearly 30% 3 years ago. This enhanced diversification increases our flexibility to pursue growth where it is most strategic. As we move forward, we are open to partnering and growing with any customer if they are supportive to our mission, helpful in building our brand, and committed to growing the category profitably. As we have started to roll out the playbook, we have found that many new customers checked all those boxes.

On Slide 19, you can see that our North American foodservice business, excluding the largest customer, grew up by 11% in the quarter as we are building momentum with the playbook. Our relevant messaging using the unique Oatly voice to inform consumers that they are likely to prefer Oatly to cow's dairy. These executions are in super high-traffic areas such as train stations, you see on this slide. And then when consumers are at their local coffee shop, they can now order interesting social media-ready drinks that use oat milk as the default base.

On Slide 20, you can see, we have also continued to make progress in retail, where total revenue increased by 4% in the quarter. This growth was helped by extending our relevant messaging to in-store executions. Additionally, I am excited to see the growth contribution by strong club sales, which have rapidly increased to 6% of the segment's quarter 3 revenue compared to less than 1% in 2024. We're driving strong velocities, and we expect clubs to be a growth driver for us.

Today, we're in 5 Costco regions, and we expect to add more clubs and more SKUs in the near future. While foodservice and club sales are not in the scanner data you tracked closely, these are high-quality channels that are very helpful in building our brands, growing the category, improving profitability, and ultimately delivering on our mission.

As I mentioned last quarter, we are being thoughtful, deliberate, and disciplined in rolling out our playbook in North America. Given the success in Europe and international, we know what's possible. We continue to see that the underlying category, coffee, and consumer trends are extremely similar in both regions. However, our execution is a few steps behind and we're still in the very early stages of rolling out our playbook.

The U.S. market is also more complex. And what we expect, we will continue to improve. We do not expect the growth acceleration to come as quickly as we have seen in the Europe and International markets. Make no mistake, though, we are committed to driving the performance that we expect in these critical segments. And we're confident that with sharp, locally relevant execution, our playbook can drive strong profitable growth in North America, but step-by-step.

Turning to Greater China, on Slide 21. Our Greater China team continued to execute well in a challenging consumer environment. The segment posted strong growth in both channels. The foodservice business, which is the largest part of this segment, grew revenue by 18% in the quarter, and we maintained strong relationship with the largest coffee chains.

We have continued to develop the retail channel with our entrance into club. In the quarter, the segment's retail volume reached an all-time high. And the segment drove positive adjusted EBITDA in the quarter and on a year-to-date basis. I am proud that the teams have remained focused on the business as we execute the ongoing strategic review. They have continued to build the business and service customers very well.

I will now turn the call over to Marie-Jose. MJ.

Thank you, Daniel, and good morning, everyone.

Slide 23 shows the quarterly P&L, which is our best performance as a public company. This quarter, we grew revenue 7.1% and 3.8% on a constant currency basis. Gross margin was 29.8%, which is flat compared to last year Q3. Adjusted EBITDA was a positive $3.1 million in the quarter, which is $8.2 million higher than last year Q3.

Slide 24, shows the bridging item of our revenue growth. Volume grew 6.6%, partially offset by a 2.8% decline in price mix. Foreign exchange was a 3.2% tailwind.

Slide 25, shows our year-over-year gross margin bridge. The benefits of absorption and supply chain efficiency improved margin by 60 basis points. This includes the benefits of the closure of our Singapore manufacturing facility in December. These benefits were partially offset by the impact of lower volumes in North America, including absorption headwinds and supplier penalties that were higher than anticipated as we true up our accruals.

We expect fewer supplier penalties in Q4. Pricing and product mix was neutral to gross margin in the quarter. The benefits of our strategic mix management in Europe and International and customer mix in North America were offset by unfavorable product mix in Greater China. We experienced a 90 basis point headwind from inflation in the quarter, which was mainly driven by higher labor costs in our European supply chain. Finally, the impact of foreign exchange movements added 30 basis points.

Slide 26, shows the year-over-year improvement in our adjusted EBITDA. The $8.2 million improvement was driven by a $4.3 million increase in gross profit and a $3.8 million decrease in SG&A and other. The reduction in SG&A reflects the ongoing work for a more fit-for-purpose cost structure. These reductions are from various areas, including indirect procurement that we mentioned last quarter and were partially offset by the impact of FX movements.

Slide 27, shows segment-level detail. Europe and International grew volume by 8.4%, which highlights that our growth playbook is working. This strong growth drove a $9.5 million increase in the segment adjusted EBITDA. North America's 10.1% revenue decline was driven mainly by the change in sourcing strategy at a large customer. The segment's adjusted EBITDA declined $4.5 million compared to the prior year, which was mostly driven by the decrease in revenue.

Greater China grew constant currency revenue by 28.7%, which was higher than we expected. This outsized growth was impacted by the timing of customer orders, and we do not expect sales to be as strong in the fourth quarter. Corporate improved by $3 million as we continue to drive out costs.

Turning to our cash flow, on Slide 28. In the quarter, free cash flow was a net cash outflow of $5 million, which is $22 million better than last year third quarter. As a big driver of our cash flow improvement has been working capital. Year-to-date, our total working capital as reported in the cash flow statement was a $20 million cash inflow. In the quarter, our cash conversion cycle was below 40 days, which is the best level since our IPO, driven by strong processes to manage inventory, collections, and payment terms. I continue to see good progress through the company and I believe we still have room for improvement.

Turning to Slide 29. In September, we disclosed that we signed a series of transactions to improve our capital structure and our financial foundation. The transactions were fully executed at the beginning of October. Specifically, we reduced the size of our revolving credit facility to SEK 750 million, which is a more appropriate size for our asset-light strategy. We issued SEK 1.7 billion of Nordic bonds. We prepaid our Term Loan B, and we repurchased and canceled a portion of our convertible notes. These transactions will be fully reflected in our financial statements starting next quarter.

This slide shows the impact of the transactions on certain financial items of our go-forward business. We expect to save approximately $5 million in annualized interest expense, which is a 7% reduction. These savings will hit the finance expense line in our P&L.

Finally, the repurchase of convertible notes reduced the potential dilution from the convertible notes. We benefit from both the reduction in outstanding convertible notes as well as the avoidance of any future peak interest. The potential dilution from the convertibles is approximately 40 million shares lower or approximately 10%. This equals to 2 million ADS.

On Slide 30, we are reaffirming our outlook for our main guidance metrics. We continue to expect constant currency revenue growth in the range of approximately flat to plus 1%. This full year range is slightly below our year-to-date growth of 1.4% and Q3 growth rate largely due to a shift in timing of sales in the Greater China segment. Based on recent FX rates and assuming no change for the rest of the year, we estimate FX to add approximately 250 basis points to full year net sales growth versus our prior expectations of 150 basis points.

For adjusted EBITDA, we are reaffirming the range of positive $5 million to $15 million. Given our year-to-date performance and outlook for the fourth quarter, we are likely to be in the bottom half of that range. Our guidance continued to assume no direct impact from U.S. tariffs. We also assume that the current economic conditions and consumer behavior will remain largely consistent for the rest of the year. Finally, we continue to expect CapEx to be approximately $20 million for the full year.

This concludes our prepared remarks. Operator, we are now ready to take questions.

[Operator Instructions] The first question comes from Andrew Lazar with Barclays.

I guess, first off, you were able to reaffirm your constant currency top line sales guide for the year. It looks for very modest growth. That's obviously inclusive of some of the onetime headwinds in North America and the discontinuation of some of the frozen products in the region. It's obviously still early to give any specific '26 guidance. But as we start to lap some of these onetime headwinds in North America and momentum in Europe remains strong, how are you thinking through what sales growth might look like next year? And what are the sort of the key puts and takes to consider? And then I've got a follow-up.

Andrew, it's Daniel here. I will take your question, if that's okay. As you said, it's early to talk about 2026, but this is how we're thinking about the business at the moment, and it's going in the direction you're suggesting. First, in Europe, we see solid continuity of the playbook that is clearly working. As we prepared in the prepared remarks, we see profit growth via demand generation. That's what we see in Europe, and I will unpack it for you a little bit.

In the U.S., we will continue to see step-by-step progress. That's the way we see, without the one-offs, right, that we will be lapping eventually in 2026. So how to think about Europe and how to think about profit growth via demand generation? I think it's a combination, Andrew, of a much stronger portfolio with focus on new usage drink occasions that are really allowing the taste strategy to bring more exciting recipes to foodservice customers and grow share of shelf. The growth of share of shelf in retail is very significant at the moment. To that, you should add an increase of the critical mass of the expansion markets.

So as Oatly growth returns, so does the category. That's what we are looking in Europe at the moment. And we're confident that with the new playbook, the category growth overhaul will take a little bit of time, but we're already seeing very, very concrete signals that we're in a good path.

When it comes to the U.S., as I was just saying, we see progress. If you exclude the one-off effects, we see the highest sales on records in both channels, retail and foodservice. We continue to outperform the market and also competitors in a market that continues to show softness in retail, and I underline, in retail. Why do I underline in retail? Because, of course, you need to -- you have to expect, Andrew, a bit of a one-off portfolio delisting to continue to hit us for the rest of this year and the start of 2026. Normally we should be lapping that and start with a clean base as of quarter 2. And then you will see some new distribution coming. So there is more distribution to go as of quarter 1 2026.

Second to that, you need to add clubs. Clubs is an exciting prospect. We see velocities mounting and significant expansion still to take place, as we prepare in the prepared remarks and at least 2 more Costco regions. The most interesting parts, to give you more color, Andrew, is foodservice. You see the double-digit growth quarter-on-quarter. And that is already proof that, it's initial proof that the playbook is also working in North America in the channels in which we can activate faster and more strongly. That's as far as I can share with you today, I believe, Andrew. I hope that's okay.

And then just a quick follow-up on Slide 11. It looks as though the European retail consumption for the oat milk category accelerated in the third quarter, surpassing that of plant-based milk category overall. And that had not been the case, I guess, in any of the prior 3 quarters. I guess what would you attribute the acceleration to? And would you expect the trend of oat milk taking share within plant-based to continue in Europe? Or were there any extenuating circumstances that made this quarter sort of more of a one-off?

Yes. Thank you, Andrew. Daniel again. Yes, I -- certainly, the attribution is to the experience and taste strategy. It's clearly driving consumer relevance and is creating category demand, again, in Europe. If you ask me, we -- were we expecting to see this, this fast? Possibly not. The reality is that we see concrete signs that with Oatly's growth, the category growth follows. You will remember, we use that phrase that we differentiate plant-based milks from oat milk from Oatly. That's exactly what we're seeing again. So we see strong volume growth and even oat milk penetration, Andrew, we talked these many times, penetration is a marker of category growth that is the hardest. We see some decimals of category penetration showing signs of growth.

What we see is that it clearly hits a bull's eye of what Gen Z are expecting: Flavor, excitement, well-being, and sustainability. So this new strategy puts us a bit of -- in the center of the storm in the forefront of this much bigger beverage space that we had in one of our slides in the presentation.

We're making both foodservice menus and shelves in retail more relevant and way more exciting, more colorful, more exciting. So that's why I like this phrase that we used for the prepared remarks that it's a bit of a reframing of the category, what we're seeing, Andrew, and time will tell, but it's not just an alternative to milk any longer, but an experience canvas for drinks that is relevant to all and not just for a few, right?

As we lap the first generation of plant-based growth, we are indeed creating the, what we call internally the second revolution. We are implementing the same playbook in the U.S. with positive signs in foodservice, as I said. So I'm sure you were thinking about the U.S. and so were we every day, the U.S. being a bit more complex. So it will take a bit longer to close the cycle in retail, which you know is a much more slow-moving channel. I hope that's okay, Andrew.

The next question is from Tom Palmer with J.P. Morgan.

I wanted to just first ask on kind of some of the trialing that you've mentioned this quarter and also in some recent quarters, how the taste preference is a great way to highlight or, I guess, a great differentiator and way to drive traction with customers. What are the most effective ways you found to, I guess, get customers to trial? And maybe some color on kind of how that plays out. I mean it does seem like there is some distribution opportunity, especially in the U.S. that you're starting to take advantage of. So just kind of driving the trial to bolster that.

Very good, Tom. So Daniel here again. I will try my best not to repeat, the part of the answer of Andrew were blended in your question, I guess. We believe we're really capitalizing on this taste and flavor bonanza as we like calling it internally, right? So that has transformed coffee, as you know, from hot to cold and much more of a beverage space than coffee. So how do we generate trial, which was your question?

You know that Oatly has this proprietary way of looking at business, which is we have been, since our inception, intimately woven into the coffee space. Today we've built an iconic team, Tom, of over 60 Barista market developers who spend more than 1,500 hours a week in coffee shops from Mexico City to Seoul to Paris. And they are dedicated to working directly with our partners to making their menus more relevant as they capture the evolution of coffee in -- really, really in the early stages of the change curve. So that is what we believe, and that is how we generate the trial. So people should experience these signature drinks first.

And then we scale it up. We have a very concrete monetization strategy, which is how does that show up in retail. We -- you might remember from the last quarter, we talked about the popcorn flavor, which is flying off the shelves and now we added the Matcha Oat drink. So these are drinks that have -- people have tried in foodservice, they have tried in concerts and in pop-up stores and then they find in the retail for them to take home. And that is a bit of the circle or the flywheel, if you want, as to how we see the business model working. That's what I can add, Tom, to your question.

And then just on the guidance, and you did provide, not a super wide range here in terms of EBITDA. But when thinking about kind of the upper end versus the lower end of the range, what are kind of the key swing items that you're watching?

Yes. Hello, Tom, this is Marie-Jose. So as we said, I'm going to repeat a little bit what we already said in the prepared remarks. If you look at Q3, right, from a top line standpoint, you do know that there is a timing shift here going into Q4. When it comes to gross margin, if you take back what we said in the prepared remarks, there is an impact that it's a true-up that happened in Q3 that will not happen in Q4. So we expect this impact to be for about 200 to 300 basis points in Q4.

And then if you take that from a gross margin standpoint and you add the work that we're doing in SG&A, which has been, and you can see that we have made improvement in our Q3 results as well, the combination of the 2 is what will drive a few million dollars to impact in Q4. So if you look at the evolution and the continuous improvement, what I just said explains why we just call out the low end range of our guidance.

I apologize. I meant -- I thought it was the bottom half of the range, so essentially the 5% versus the 10%.

Yes, correct. This is -- I mean, the way to look at it is it will be on the lower half because of how we are looking at Q4 when it comes from a phasing standpoint on the top line with the true-up that will not happen in gross margin in Q4. And that combined with our SG&A improvement will make the adjusted EBITDA on the lower half for the full year.

The next question is from the line of Dara Mohsenian with Morgan Stanley.

So you've done an impressive job reinvigorating growth in Europe in the last few quarters. As you mentioned, North America is taking more time. Just anything you've learned in Europe from your success there that you think is applicable to the North American market as you think about returning to consistent growth in that region? Obviously, separate consumer dynamics in the 2 regions and the U.S. is a complex market, but any cross-geography learnings you think can be applied?

And just as we look forward to 2026, can you just give us a bit more detail on plans to drive greater household penetration in the U.S., more conversion of the oat milk category, the club expansion maybe is perhaps part of that? But just as you think about really trying to unlock new customers for this category, what are the biggest focus points for you?

Dara, how are you doing? That's Daniel here again. Yes, as you can imagine, we think day in, day out about that question. So -- and we -- yes, the way which I would like to start addressing that is that we are confident, we're very confident that we will be able to drive strong and profitable growth in the U.S. We believe -- strongly believe, and I will unpack it for you. We believe it's a matter of when as opposed to a matter of if, right?

So why -- the first part of your question, why do we believe that is the case? Well, first, you see -- because we see that the evolution of the European and the American consumers in our space is fundamentally similar. I underline, in our space, right? Based on the hard evidence of the underlying consumer trends and the real-life experience of pulse check we have from our Barista market developers. You saw what I answered to Tom, we have over 60 Barista market developers in different cities in the world scanning what is -- how is the change curve happening. And the 3 points that substantiate that, Dara, are the coffee space. It has developed identically in both regions from hot to cold and into experiential beverages. You see exactly identical trends.

And you see a lot of customers now pivoting from London to New York in the foodservice space, for instance, right? So that's #1. #2, younger consumers, Gen Z, but then the Alphas are obsessed with flavor and taste. Obsessed. And #3, as we have mentioned in a couple of quarters ago, the preconceptions on taste for plant-based drinks are the #1 barrier to conversion in both regions. When we do blind taste tests in dairy versus Oatly, we see that both in the U.S. and in Europe, in many markets, the same 50% preference for Oatly everywhere. So that's the fundamental.

The second one is that we see it working already in coffee and foodservice. So remember that when we look still and when you look at these segments, you are going -- we are navigating headwinds that have to do with this large customer that I want to underline now represents only 10% of our revenue. And also some delistings of adjacencies that didn't fully work, right?

So when you remove that, we see it working in coffee and in foodservice, where customers are more receptive to the strategy I was describing, Dara, and so we can move faster. So we do believe that the taste-focused approach is the right approach for the U.S. And of course, we're adapting the nuances on taste, and we're adapting to nuances on formats. We are under no illusion that things are identical when it comes to the product offering in both markets. Now I will pause there to say what are the differences. The U.S. market is very large and more complex. The most notable difference, Dara, is the timing of shelf resets at retail. Typically does once a year and very, very strict and narrow windows.

So while these differences and complexities might make progress lower than in Europe, and it will, inevitably, we believe. The important thing is that we understand the differences, and we set the course in the right direction. So we expect progress, but step-by-step.

And then just on the profitability front, obviously, EBITDA progress this year. Just as we look beyond the guidance that's in place for this year, any thoughts around being able to drive continued cost savings, whether it be efficiencies on the supply chain front or SG&A in the broader organization as we look out to 2026 and beyond?

Thank you, Dara, Jean-Christophe speaking. Just to be clear, we will continue harvesting savings on both fronts, both supply chain and SG&A. What was initially 2 to 3 years ago, a turnaround urgent necessity has become a permanent daily mindset. So all the teams are permanently looking for opportunities to be more efficient, leaner, and drive more impact with the same amount or even less of resources. So this continuous improvement obsession is all around and will continue in '26. As you can imagine, we are still in the middle of the budget planning. So too early to translate that statement into figures, but that's exactly what we will continue to do.

The next question is from John Baumgartner with Mizuho Securities.

I'm curious, coming back to North America in terms of the profitability there, quarterly EBITDA has been bouncing around breakeven now since, I guess, early 2024. And presumably, some of the operating leverage benefits have now leveled off. I'm curious, in the context of this ongoing productivity, how are you thinking about the margin evolution in the region going forward? Short-term needs for incremental reinvestment relative to new opportunities for efficiencies, what those efficiency buckets might be? And then long-term, how do you anticipate North America margins at normalized levels relative to those in Europe?

John, I'll start by, I think MJ possibly will complement or JC here as well. There is a very, very clear and concrete part of your question, which is the volume decline in North America have consequences, of course, in the levels of absorption and some of the penalties that MJ was referring to. So that is the attribution to the -- yes, we call it lack of progress, if you want, as we would have intended in North America as we are lapping those effects eventually during quarter 1, quarter 2, as I mentioned in one of the previous questions on both foodservice and on the adjacencies, we do see underlying growth. So you see -- you should be seeing those 2 lines crossing in the future.

Now there is absolutely nothing structural or long-term that you should be concerned about. And here, we have set very clear long-term guidelines for both our margin and profitability. And we have said consistently that we believe that the U.S. should be driving strong profitable growth in the near future. It's only that the top line has been more stubborn for the reasons that we have explained so many times. There are some mechanical events that we're still lapping. Some of them are not under our full control. And we are focused relentlessly on driving consumer demands as we see already in clubs and as we see already in foodservice. So we will be relentless there. And then with volume and with demand generation, you will eventually see what we're seeing in Europe, which is profit growth through consumer demand.

And then looking at Europe, a lot of conversation about the oat milk part of the category. But I'm curious, given how well established plant-based beverages are in general in the region, what are you seeing from some of the other varieties, soy milk, hazelnut? How do you think about the competitive advantage of oat, whether it's formulation being used in creamers? I'm curious what you're seeing with interactions with other plant-based varieties. Are volumes softer? Do you see more price competition from other varieties? Can that price competition derail some of the progress that you're making in oat? Just your thoughts on the competitive environment in Europe.

Very good. There are many elements of your question. It's Daniel again here, John. First, you see it's not necessarily more established. You're talking about 30% penetration. So this category, when you look with perspective compared to all the categories were used to manage you, us, is on its infancy.

So we look at a notion of opportunity of 70% category penetration ahead of us. That's how we look at the category. And when you look at it like that, you are creating new consumer demand. You're bringing new consumers into the category and you're bringing new consumers into a category that why the new generations is not seen just as an alternative to cow's dairy. That is the most exciting, not that we have nothing -- we're not changing our mission. Our mission is still identical, and we believe in our mission. It's just that bringing more people into this category takes a different playbook. So that is the most important part of addressing your question.

Then as coffee evolves into beverages and new Gen Z and Alpha are kicking in, yes, you see some other crops evolving, but from a very, very small base. The reality is, as I said, I believe, to Andrew at the beginning, the macro dynamic we see in Europe, whether it's in the established market for Oatly, on the new is, Oatly growth outgrows the oat milk category, and then that drives plant-based milk penetration and growth. That's the phenomenon we see today.

Then the third angle to your question is pricing. You see, we command a strong premium in Europe. We have said this many times, there will always be space for pricing and private labels. That's not our market. And we respect consumers that go for price. That's not our game. We are in a value game, and we feel very, very comfortable in it. So -- and we're driving growth and profitability in it. So that is, in a nutshell, the way we see Europe at the moment.

The next question is from Samuel [indiscernible] with Nordea Markets.

Perhaps one question from my side. Looking at the financials, sequentially, we didn't see any improvement in free cash flow from Q2 despite the decrease in the cash conversion cycle. I'm just curious that how much there is still to squeeze from and what you would expect to be the magnitude for the next improvement in the coming quarters regarding the free cash flow?

Hello, Samuel, this is Marie-Jose. So look, since I joined Oatly 2 years ago, I've been repeating how cash is important to me and to the company. And this quarter, as you just mentioned, is another proof point of how much we are progressing on that field. So how to look at it? You know that we've been working through a couple of building blocks. First one, of course, is to continue our P&L profitability journey. Second is definitely to double-click on good practices and processes. And we do know that we have room for improvement when it comes to working capital. You saw the slide on the deck that as well show the improvements we're making, not only from a free cash flow, but as well on the cash conversion cycle. And then on top of that, we remain disciplined on CapEx, and you saw that as well as we go.

So I'm not going to call any numbers or any evolution. But if you take all those building blocks and you look at how we have been continuously improving, it's a matter of time. We are on track. We are delivering our business plan. We are fully funded. It's a matter of time. This is all what I can tell you.

This concludes our question-and-answer session. I would like to turn the conference back to Brian Kearney for any closing remarks.

Great. Thanks, everyone, for joining us today. If you have any follow-up questions, please feel free to reach out to me, and we can set something up. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.